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.

The idea is to be able to generate reliable stable revenue from your customer base which puts you into a stable financial position as its now very easy to be able to forecast your revenue and thus create reliable future plans for your business and spend.

I don’t think I need to further emphasize the benefits of reliable monthly income, as I’m sure you can think of many right away.

The service plan or “maintenance contract” is usually something that is used in your more traditional service industry, such as IT for example. Whereby service companies sign contracts with customers at fixed monthly or yearly fees for X period of time.

With a little imagination however we can easily put this to use in any other business, I don’t really care what it is, there is always an opportunity to offer a recurring billing product.

Where possible, you should always offer something similar in your portfolio as its these recurring plans that offer you the peace of mind and reliable income in difficult times.

For example, a fitness or bodybuilding trainer can offer current customers a dietary program that monitors their measurements and weight and makes monthly adjustments to their diet plan based on their changing macronutrient requirements for R150 a month, or whatever it is worth to you.

Even though many customers could easily do this themselves, people are inherently lazy and would rather have somebody do this for them for a small fee, even if all they are really getting out of it I peace of mind.

With enough customers, these small monthly billings add up to good extra revenue.

Try to take advantages of opportunities for making your customers life easier by offering small additional services for a small fee. As an expert in your own business, I’m sure you can identify many opportunities for recurring services you can offer your customers for an additional fee.

Actions 1:

1. Investigate opportunities in your business where you can offer recurring monthly services to existing customers.
2. If you are considering offering your own service that takes up time: Calculate at what it price it would be worth it to you to offer these services, based on the time and admin it takes. Would you customers pay this price? If unsure, test it out on a few choice customers!

For example, if you are considering offering a certain service for a certain free, for a certain number of customers, and this would now take up 6 days of your time each month, will it pay you enough based on what your time is worth?

Lets say you used those 6 days to rather perform your core service, would you receive more revenue?

You need to calculate whether offering additional services is really worth your time or not, or you could be doing yourself a disservice.