The greatest asset to your business is your Customer, specifically, your Customer Lifetime Value.
In my many years in Sales and Marketing, I've met many CEOs and business owners who don't have much clue as to what Customer Lifetime Value is, much less its importance and the impact it has on their bottomline. To most of them, what matters most is to increase revenue by continuously acquiring new one-shot customers.
This is one of the fatal mistakes that many business owners make; it's a sad scenario, but it's also the reality. Let me tell you something: it'll cost you 5 times more to attract a new customer than it is to bring one of your past customers back to you.
I don't know you personally, but if you're a smart business owner, you'll understand that every cent you invest in advertising is going towards acquiring new customers. You'll also realise that once you've acquired the customers, you just can't afford to let them go.
----------------------------------
So what's Customer Lifetime Value?
----------------------------------
Customer Lifetime Value is defined as the total value, in monetary terms, of your average customers spanning the entire period that these customers are likely to do business with you. It's the potential contribution of your customers to your business over a period of time.
Here's how to calculate your Customer Lifetime Value:
1). Let's say you've 2,000 steady customers and these customers remain with you for an average of two years; for the past two years, your net profit was $700,000.
The Customer Lifetime Value can be calculated as: $700,000/2,000 = $350.
What this means is that over an average customer lifespan of two years, each new customer you could acquire and keep is worth $350 to you in profits.
2). If you do not have the actual figures, you'll have to estimate. As the Customer Lifetime Value will have a significant impact on your bottomline, my advice is that you be prudent and conservative in your estimation.
----------------------------
Why is it so important to you and your business?
----------------------------
Lifetime Customer Value is important to you and your business for the following reasons:
1). Knowing the Lifetime Value of your customers is crucial to you and your business as it serves as a benchmark without which you'll be groping in the dark.
When you know the Lifetime Value of your customers, you can determine how much time, effort and money you can afford to invest to acquire that customer in the first instance.
In other words, you can invest more today to reap a much larger profits later down the road as long as your cashflow is healthy and can support it.
Every marketing campaign that you undertake costs you money as well as reaping you benefits such as increased sales, enhanced corporate image, etc. But how can you be sure that the benefits would outweigh the costs or investments? This is where knowing the Customer Lifetime Value is so powerful - it helps you to determine this even before you launch your marketing campaign.
2). When you realize that customers are actually an ongoing stream of revenue as opposed to a one-shot sale, you can re-focus your marketing efforts.
Instead of contantly struggling to acquire more and more new customers, you can now begin to focus on keeping your existing customers longer and selling to them repeatedly, in other words, repeat sales.
You may spend more like making stronger and more attractive offers than your competition in acquiring new customers now who will be your money spinners tomorrow.
This makes sense because you now know that on average you'll more than make it back over the years that the customers are with you and therefore you could afford to break even or even lose money now in acquiring the new customers.
Start shifting your focus to Customer Lifetime Value and maximise your profits today!
Start to have a proper understanding of Customer Lifetime Value because it's key to the success of your business. It'll allow you to acquire more customers than your competition through better and more attractive offers; it'll dramatically increase your bottomline through more repeat sales and shoot your profits through the roof.
About the Author
Copyright 2004 by Larry Lim, MarketingSphere.com
Larry Lim is a practising marketing strategist and tactician who dishes out highly effective marketing strategies and tactics that will enable you to successfully start and grow your business on the Internet.
Check out his Internet Marketing Strategy website that is jam-packed with internet marketing secrets and softwares that will skyrocket your sales, and shoot your profits through the roof.
What is a Joint Venture?A joint venture is an agreement... Read More
Whether you want to admit it or not, soap operas... Read More
Unless your company has absolutely no competition now or in... Read More
I spend a lot of my time reading books and... Read More
The intellectual property transfer market is now estimated to be... Read More
Most professional copywriters would say that headlines account for 80%... Read More
This past weekend I received a disturbing message from a... Read More
Direct Mail . . . Newspaper . . . Radio... Read More
"Both the market and the distributive channel are often more... Read More
Over the past 30 years, I've read so much on... Read More
Your customers don't know what they want. And to assume... Read More
Pre-note: In this article, teleclass is an example used to... Read More
'Word of Mouth' is still one of the most effectivemarketing... Read More
One of the most critical but overlooked parts of business... Read More
As you have probably experienced there is a lot of... Read More
I have been designing Yellow Page ads for the past... Read More
How do you answer the seemingly easy question, "What do... Read More
Postcards can drive a huge amount of traffic to your... Read More
Being inconsistent when it comes to marketing your business can... Read More
It is easy to focus on what remains outstanding and... Read More
You probably spend a great deal of your time looking... Read More
Want a big boost in response and quick sales from... Read More
Customer endorsements are an inexpensive and easy sales tool, particularly... Read More
Personal contact with customers is a crucial element in the... Read More
An important part of planning your business is to know... Read More
If you follow the prevailing logic of most modern companies,... Read More
Quit spreading those chain letters, nothing is going to happen... Read More
Having a marketing strategy and marketing approach is very important.... Read More
The best joint ventures are with people in your own... Read More
When conducting strategic planning for any company -- online and/or... Read More
Good marketing, whatever form it takes, always meets certain criteria.... Read More
Most businesses target only people "ready-to-buy". These hot prospects are... Read More
We're back to the subject of ethics, more specifically, business... Read More
We live in an unprecedented era of communication. Because of... Read More
Maybe you've heard these different marketing terms, maybe you haven't.... Read More
It is my belief that if anyone is to suceed... Read More
How would you like celebrities to endorse your product?Perhaps that... Read More
Color is one of the most difficult parts of a... Read More
Every professional or consultant knows that clients typically hire people... Read More
If anyone was to ask me what my greatest strength... Read More
Considered a vital link in a show's promotional plan, direct... Read More
Thousands eyes were fixed. Hearts were beating hard against the... Read More
Are you tired of living off handouts from big-name marketers,... Read More
The most important, yet overlooked aspect of marketing is an... Read More
Generation X"--the 40 million or so people born between 1965... Read More
Too often we small business owners get caught up in... Read More
Trade show rentals allow you more flexibility and the opportunity... Read More
A simple answer to that is: Yes, Marketing Miracles happen!... Read More
So, you want to know what your competitors are up... Read More
Looking for the magic formula or the whiz-bang approach that... Read More
Picture this. You develop some product or service, spend countless... Read More
"Make money for taking surveys"," Cash for your opinion", "Make... Read More
As a small business how do you compete with the... Read More
What is it like from a marketing perspective to be... Read More
Marketing is actually very simple. It involves telling people what... Read More
As a life-long dancer, I know a bit about the... Read More
What is a company profile? ... Read More
I often wonder how people without a plan know where... Read More
How Colors Effect Our Emotions?One of the most interesting things... Read More
Direct Mail CampaignsDespite the proliferation of communication facilitators--mobile phones, faxes,... Read More
This tip is so simple, that many people we've talked... Read More
So how do you effectively market your product or service... Read More
Popular TV Series Provides a Powerful Marketing LessonSmall Business owners... Read More
The greatest asset to your business is your Customer, specifically,... Read More
It is a well known web site marketing strategy: To... Read More
The importance of pricing can not be underestimated as incorrect... Read More
Marketing |