Secrets to Success
Secrets to Success
The 12 secrets of maximum
profit marketingEditor's note: This column is part two in a series of five. Part three is scheduled to run Thursday, the usual home of Secrets to Success
Small business is big business all across the United States. In 2001 nearly 10 million people in the United States were "self-employed" and more than 50 percent of the entire non-farm work force was employed by small businesses.
That's a lot of families directly affected by small-business performance and profitability. Whether you realize it or not, more and more people's livelihoods are directly impacted by how effective small businesses are at serving clients and producing profits.
Even if you don't own your company, think about how you can help your team or supervisor apply these principles. I can guarantee you'll be recognized as a leader if you do. You can reap increased rewards when you step up in an innovative company. In today's challenging business environment, no matter what your position is, the more you can do to help your company succeed, the more secure and profitable your position will be!
In this second article in the special series on maximum profit marketing, we're going to look at what I consider the most critical principle for maximizing all your marketing efforts.
Principle three is the lifetime value of a client.
Sadly, many businesses have no idea what the lifetime value of a client means. Or if they do, they don't know how to calculate this crucial figure and how to put it to use. While there's no way for me to effectively show you how to harness the full force of this extremely powerful concept in a short article, I can explain lifetime value for you -- simply and clearly.
Lifetime value is defined as the total dollar amount your average client purchases over the entire period that they're likely to do business with you. You can use actual sales figures from past years to arrive at an exact figure, or you can estimate. There are some simple tricks to making your estimates more accurate, but for the sake of brevity, we'll use actual historical numbers in this example.
Let's say that you've determined that your clients stay with you an average of three years. And you have 3,000 steady clients. Your net profits over these past three years have been $780,000. So the lifetime value is $780,000 divided by 3,000, or $260. So each new client you can get and keep is worth an average of $260 net profit to you over the average client life of three years.
Here's why lifetime value is so important and how you can use it to outfox your competition:
Let's say you run an ad that costs $1,000 and you get 35 sales at $25 per sale, for a total revenue of $875. On the surface that doesn't even appear to cover your costs. Most businesses would consider these results a failure. But once you understand how to apply the lifetime value principle, you will not. You'll see that for every $28.57 per client ($1,000/35 clients) you invest, you get a $260 return. And that's not even counting on improving your service or product to increase purchase frequency or the amount of time a client stays with you.
I don't know about you, but I'll take as many new customers like that as you can find me.
The reason I am so passionate about this principle is simple. It can literally transform your small business into a client-focused, profit-producing powerhouse. As many practical applications as this principle has, this concept has a powerful intangible impact on your philosophy of doing business. It will free you to give more to your clients than they expect, and you will never feel that you are losing money when you offer promotional deals.
In 1992, when my business coach showed me this powerful principle, I was blown away. It literally revolutionized my approach to marketing, and to client service. I can guarantee you that once you realize clients are actually an ongoing revenue source rather than just part of "today's sales"; you'll reap a profit windfall while you exceed your clients' expectations. And you'll actually be able to leverage your earnings and profits multiple times without increasing your customer base. This works with a transient-based clientele too.
In the next column you'll learn three more fundamentals for maximum profit marketing that you can im- mediately put to use for increased profits and a surging cash flow. This article series is based on our book, "Small Business, BIG Profits," the high-impact, low-cost marketing course for the small-business owner.
John-Paul Micek is a small business strategist and chief operating officer at RPM Success Group. Reach him at JPM@RPMsuccess.com or (888) 334-8151.
John-Paul Micek is a small business strategist
and chief operating officer at RPM Success Group.
Reach him at JPM@RPMsuccess.com
or toll-free at (888) 334-8151.