This is 1 of 2 articles that focus on marketing metrics and the value of analyzing and measuring all your marketing efforts and customer data.

Once you understand your marketing metrics and customer data you are in an incredibly valuable position whereby you can tell exactly what works and what does not, what you should do more of and what you should stop doing with regards to your marketing spend.

The lifetime customer value metric aims to calculate how much each of your customers are worth on average through a certain period of time, usually a year.

Let’s say on average each customer spends R4000 with you over a period of 1 year. What can you do with this information? Well, this number tells you exactly what you can spend in acquiring each customer.

Most businesses only focus on generating more profit from the first sale then they spend on advertising or other lead generation sources.

This does not take into account your back end sales.

So, let’s say that as a personal trainer you begin a new lead generation campaign for R4000 each month and get 10 new customers at R300 each, for your fitness training program. That would be R3000 revenue off your R4000 advertising spend.

Initially this would seem like a loss, and most business would stop this advertising immediately.

What’s not being taken into account here however is the value of these customers after the initial sale. Now after our previous tutorials on back end sales, you understand that these customers are not only worth their initial sale, but any sales you can make to them in future.

So, let’s say you had a good backend in place and and know that 50% of your customers will make 2 additional purchases from you over the next 2 months at R400 each.

So now we know that the 10 customers we acquired with our new campaign are actually worth the R300 initial sale (10 * R300 = R3000) PLUS 50% * backend (5 * R400 = R2000) = R5000.

So, in reality the advertising campaign is profitable and not the other way around, as we initially though.

(By profitable make sure you taken into account any additional costs in acquiring those customers, that may not be covered by the cost of the lead generation campaign)

By understanding this metric, it opens up many more avenues of advertising and marketing that you would not have considered before and gives you the power of knowing exactly what you can spend to acquire each customer.

This calculation does require you to have certain data on hand, and most businesses won’t have the customer data on hand to make this calculation right away. You may have to start going over purchase records to be able to put this data into a usable form.

Actions:

What I would recommend however is begin tracking the correct data from today.

Make sure you track each customer, what they buy, when they bought and at what price over a period of at least 6 months.

Make sure you implement a good back end sales process and optimize it to your satisfaction.

After 6 months of tracking your customers and sales that have resulted from your current front and back end sales process, you will now have the data to calculate lifetime customer value.

The calculation: Simply take your total revenue for the 6 month period and divide it by your number of customers. This will equal your average customer lifetime value.

Now you will be able to compare the results of all advertising & lead generation campaigns against customer lifetime value and have an accurate picture of which campaigns are profitable or not.

You do this and you will be be able to run profitable and successful campaigns in many mediums and locations that you competitors wont, because to them it will seem like an unprofitable endeavor. It will leave them mystified on how you could possibly be doing what you are doing.

Well we are going to make good use of this information to really maximize the profits you can generate from your business.

A very effective strategy is to offer much higher value and profit services or products on the back end, to customers who have already purchased from you one or more times.

Since we now already know you are more likely to get a sale from existing recent customers, it makes sense to take advantage of this and offer high value product or service to these customers, with the assumption that you will get a better conversion rate then if you had offered these high ticket items upfront.

These are the type of services or products that would be a very hard sell to a new prospect.

Imagine you see ad in the paper for a book on weight loss that costs R4500. You may think that there may be something of value to this product since it costs so much, however would you really invest this much in a product from somebody you know nothing about, who is making promises you don’t know if you can trust or not? Not likely.

However, let’s say you have been a fitness customer of Jim for 6 weeks, have started to see great results from his training sessions as well as the 2 supplements he has recommended so far.

This means you can already see the first 3 purchases you have made from Jim paying off and the “promises” made in the marketing of his original lower priced products have not been false.

In month 3 Jim now tells you about an advanced fitness training program he has for R7000, and shows you proof and testimonials of other satisfied customers that have completed the program.

You will be far more likely to do whatever is necessary to find the funds to invest in this program since you trust that Jims promises are real, since has delivered on previous promises so far!

The idea is to use lower priced products to obtain customers and get them into your sales funnel. You then begin to build their trust in you. If you do this by over delivering in every way on the purchases already made, you will be in a position to nurture a loyal customer who will truly trust in anything you say, and will buy anything you offer them. I promise you this (trust me J )

Actions:

1. Take a look at your current business and try and come up with ideas on an advanced product, course or service you can offer on the back end to existing customers.
2. You may be thinking that what you are already offering is as advanced and as high priced as can create. This is usually not the case. If you’re selling something people are buying on their first purchase, then there is always an opportunity to create a new advanced version or complementary service or product you can offer these customers on the back end. Use your imagination!
3. Before you begin offering any higher priced products (or anything at all) on the back end, you need to make 100% sure you are delivering (over delivering!) on your current front end products.

Obviously you won’t be very successful on the back end if you’re not delivering on your initial promises, as your customers will probably trust you even less then if they had never bought from you before.