Do you know how much a customer is worth to you over their lifetime with you?
Here’s a simple formula that makes it easy for you to calculate. It’ll change the way you look at your marketing because now you’ll know what to do to make more money.
Plug your own numbers in here to make this example relevant for your business type.
Calculation |
Result |
|---|---|
|
Average Sales |
$17 |
|
Number of Sales Per Year |
24 (Twice per month) |
|
Gross Sales Per Year (average sales x number of sales per year) |
$408 |
|
Number of years that client buys from you (average lifetime of a client, people die, move, divorce, etc. – yours might be different) |
5 |
|
Gross sales over lifetime of client (gross sales per year x number of years) |
$2,040 |
|
Number of referrals per client over lifetime |
1 |
|
Gross sales from referrals over 5-year lifetime (number of referrals per client over lifetime x number of years that client buys from you) |
$2,040 |
|
Total value of one happy customer (Gross sales over lifetime of client + Gross sales from referrals over 5-year lifetime) |
$4,080 |
10 Customers = $40,800
100 Customers = $408,000
If you only focus on getting new customers and have no marketing to build retention – then that one-time customer is worth $17. It’s going to take a long time to move your needle.
That should change the way you think about a person that walks in your door. All your marketing decisions need to reflect this.
Lifetime Value Impacts Your Marketing Decisions
Understanding lifetime value is crucial because it is the foundation for all your marketing. Instead of how much something costs, think in terms of return on investment.
If I spend X, what is my return?
Is that a good return and am I happy with it? If so, let’s do it.
If it’s not, then what can be done to improve it?
You are in the business of marketing your products and services. You don’t have bottomless pockets, so if you are spending marketing dollars and do not know exactly how much in sales resulted from it, stop doing it.
Do not do marketing that you can’t measure that “gets your name out there”, that “creates word of mouth”, that “builds your brand”. If someone is suggesting that to you, run away from them as fast as you can. That is not going to make you money as an Independent Business Owner.
It’s Just Math – Do What Makes You More Money
Every piece of marketing you do needs to be measurable and accountable and builds a relationship with your customers turning them in to loyal, repeat visitors. That is what your marketing goals needs to be.
- How much did you budget for marketing, promotion and/or advertising last year?
- How many new customers did it bring in?
- How much did they spend?
- How often have they come back?
- Who did they refer?
- When did they last visit and spend money?
- How will you get them to come back again?
When you know a customer is worth $4,080 then deciding how much money to spend to get a new one, or to encourage an existing one to return more often becomes a simple math equation. Royalty Rewards® calculates this for you based on your rewards members actual spending. Giving you the facts you need to make decisions about your marketing dollars. No marketing should be done based on hunches, or feelings, it all needs to be measurable and accountable so no dollar is wasted.
If you want to find out more about how to measure your marketing, book a free Marketing Strategy Session with one of our marketing experts who can help you decide what you can do right now to change your marketing and impact your sale and profits.
