What Is The Lifetime Value Of Your Client
The name says it all, and once you see how this simple concept can help you achieve your goals, you’ll wonder why so few business owners ever consider it.
Here’s what it’s all about.
The Lifetime Value Of Your Client (LTV) is the total profit produced by an average client over his/her lifetime association with you.
How does this number help you plan better? By knowing a client’s total value to your business, you can figure out how much you can afford to spend to convert a prospect to a client.
Let’s see how this works. For this example, your average new client:
- Spends $500.00 the first time he does business with you.
- Books rides with you again in two weeks
In the course of a year, he is potentially worth $13,000 to you.
He is going to be your client for 5 years (then he’ll move to Florida or something). In 5 years, he will have spent a minimum of $65,000 with you.
Next, figure out how much of that is profit to your limo business.
For this example, we’ll say 40%. This means you will make $26,000 profit on your average limousine or bus client over the next 5 years.
Hopefully, you’re starting to see how this can help you plan your marketing expenses. In fact, you could pay up to $26,000 (in this example) for each new client and still break even in 5 years. We don’t suggest that. But would you spend up to $250.00 to get $26,000 in 5 years? In fact, you don’t have to wait that long—you get a return on your investment with the first sale, enough to recover the $250.00 you spent.
Referrals add even more profit to the value of your clients. If your average client refers one new client to you, the profit from the original client doubles ($26,000 for the original client and $26,000 from the person they referred). And you didn’t have to do any advertising to get that new client.
Start calculating the lifetime value of your average client. Make increasing this value one of your goals. Some ways to do this include getting your clients to refer more often, increasing the average ticket, making repeat clients more frequent, and selling more services.