Lifetime Value of a Customer Explained

I always say when talking about marketing your small business, there is 'no treasure without measure'. Now if you are anything like me (and I accept we are all different but I know a lot of people that agree on this point) you like to skip the details... the boring bits...the tedious bean counting...

I mean that is not why we started our business is it? We didn't plan to be bean counters? We want to do the exciting bits, whether that is delivering the product or service or doing the creative sales or marketing roles. But actually measuring the fine details; that is not what for us, is it?

Well sorry to land this one on you, but you absolutely must be on top of your figures. You must measure whether your advertising is working because as a small business you can only spend money when it does work.

You are not Tesco or a huge insurance company that can afford to spend thousands on 'branding'. Everything you do, every penny you spend, absolutely must produce a result for you or you will soon lose your business. I know you don't want that bit, which is why I have to put in this 'boring', 'naggy' tip here because I have seen so many good people not measure and consequently go out of business.

At this point it is worth mentioning Lifetime Value. How much is a client worth to you over the course of their whole relationship with you? If you know this figure, it makes calculating how much you can spend to generate a new client so much easier.

Imagine if you know that the average client spends with you the sum of £1,000 over a three year period. How much money could you spend to attract one new client? It will be different for every business, but if you know that of that £1,000 say £500 is profit, would you be prepared to spend £100, £200 or £250 to win that new client? If you know the sum for your business is a maximum of £100 and you quickly find a way to generate new leads for less than £100, you could keep on generating new clients until you were as busy as you could manage (and as far as your cash flow would let you ).

If you spend some time assessing your lifetime value it makes the rest of marketing your business so much easier. What is your figure?

By Nick Jervis