The “Lifetime Value” of a client is something that most business owners that I work with do not understand. At least not in a specific, this is the tested and measured numbers, way that I mean it. As a Business Coach, it makes me wonder how they could ever determine a budget for their business. Of course, the answer is, they don’t!
Whenever you are looking at creating a plan for your business, you must start with looking at where you want to go. Just like, if you get in your car to go on vacation, it works much better to know where you want to go, than to just start driving randomly. What does this have to do with the Lifetime Value of your customers? I’m getting to that…
Most of the time, when we look at where we are going in our business, we are saying that I want to grow the business to either ‘X’ dollars in Revenues (or Profit) or ‘X’ number of clients (or customers). But, how do we determine those numbers? Most of us, just pull them out of thin air, and then we wonder why we have trouble achieving it! It’s not grounded in reality!
You want to start with, what is the “Lifetime Value” of my customers. What do I mean by that? How much money does the business make, on average, from each and every customer (or client) that we have. After we pay any expenses that are directly related to that sale/client/customer, what amount of money is left to pay our bills from all the transactions that client/customer does with us over their lifetime as a client.
You see, if I know this, then I can determine the other things that I would need to know to be able to effectively plan my growth. So start by looking at your current customer base and see what is the amount that they spend over their lifetime as customer with you. Determine what portion of that is taken up by your cost of goods, and average it over the number of customers you have and you’ll start to see a very interesting picture arise.
Have fun, and feel free to leave comments below for further business advice.