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.

This is simply a way to increase your conversion rate on back end offers. You conversion rate is simply the % of customers you make an offer to, that accept the offer and proceed with the purchase.

For example, as a fitness professional who offers a group class training session (such as spinning class) as well as one on one training, you can offer all your group class students 20% discount on your one on one training simply because they are already in your group class.

Discounts are great, and people always want to save a buck where they can.

I would recommend first recommending an additional service or product to existing customers without a discount. Track the conversion you receive over 3 months and the additional profit generated.

Then offer the same product at a discount and record you conversion and additional profit.

In most cases your conversion will be higher with the discount then without, but if it is not high enough, the revenue you loose offering the discount may put the total profit generated below what was generated at the lower conversion, but without the discount.

You should always track results, conversion, profits and test test test test offers and discounts until you reach the highest profit to discount ratio.

At this point I’m going to stress something very important. You always need to track results, conversion and profits so you can accurately gauge the results you receive from your marketing efforts.

If you don’t do this you could be wasting your time for minimal results, or even do your business harm. Its very easy to do this, so there is no excuse not to, as it has direct effect on your bottom line.

Go here for an article on marketing tracking and metrics.

Next we will discuss service plans.