Boost your net by
knowing Lifetime Value

What's the No. 1 statistic you need to put the odds of marketing success in your favor?

Before you spend one dollar on any marketing strategy, advertising campaign, or structured referral system -- you must know the Lifetime Value of your average client.

Sadly, the vast majority of business owners have no idea what Lifetime Value is, how to calculate it, or what it means to their marketing efficiency. Those few who do are the ones who lose small, win big, and leap ahead of their competition with such seeming ease that it looks like they have the golden touch.

Lifetime Value is defined as the total dollar amount your average client purchases over the entire period 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 four years and you have 300 repeat clients. Your net profits over these past four years have been $780,000. The Lifetime Value equals $2,600 ($780,000 divided by 300). So each new client you can get and keep is worth an average of $2,600 net profit over four years.

Now, here's why Lifetime Value is so important and how you can apply it to maximize your marketing dollars and outfox your competition.

As an example, let's say you run an ad that costs $3,000 and you get 14 sales at $200 a sale for total revenue of $2,800 (14 sales multiplied by $200 each). 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'll see it's not.

For every $214.29 invested ($3,000 in ad costs divided by 14 new clients), you get, on average, a $2,600 return. And that's not even counting on you improving your service or product, encouraging a higher repurchase frequency, or extending the amount of time a client stays with you.

I don't know about you, but I'll take as many new clients at $214.29 as you can find for me, since I know that I'll reap a $2,600 average return. As long as you do your part and deliver at or above your new clients expect they'll stay loyal and repurchase over and over again.

Now you have a glimpse of why I'm so passionate about this principle. It can literally transform your small business into a client-focused, profit-producing powerhouse. And there are dozens of applications for Lifetime Value in almost every area of your business, from improved customer service to increased net profits, without adding one new client.

Now those are the type of odds I like. How about you? Gather your client information and accounting data together and get to work on your lifetime value today.