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                                                                                        Lifetime Value Of Your Customers

Three guys walk into a pizza joint...

No, it's not the start of a joke, although the joke may be on the owner of the pizza business if she doesn't understand the concept of "lifetime value of a customer."

If you do not know what your average customer is worth over the lifetime of the relationship, you are missing a valuable piece of the marketing puzzle, and it will cost you BIG TIME in lost sales and profits.

If the owner of the above pizza business doesn't know the lifetime value of those three guys, then she can't know how much she should spend to acquire and keep them as customers.


And...this is NOT some sort of FUZZY math. If you know your business you can calculate the lifetime value of a customer quite easily. 

Once calculated, you will find that the dollar amount you arrive at will most likely surprise you...and quite possibly enlighten you. Once known, it opens up a whole new view regarding how to market and manage your business. It DOES NOT matter what type of business your are in. A pizza restaurant, a dental office, a plumbing company - every type of business can capitalize on knowing the true lifetime value of its customers.

So...just what exactly does "lifetime value of your customer" mean. Simply the total contribution to overhead over the entire life of the relationship between you and your customer. It includes NOT ONLY the initial sale, but all other residual sales less the product/service costs and the advertising/marketing expenditures.

Let's say the average customer that walks through your front door or visits your website and then purchases from you is worth on average $150.00 for the first sale. That is NOT the number that means anything. If you are marketing your business correctly, you have established a relationship with that customer that will continue over to other sales. In this example, let's say the average subsequent sale is $100.00 and the average customer makes another 8 sales. That means that every new customer to you is worth $950.00 in sales dollars. If you product/service cost is $350.00, then your gross profit per new customer is $600.00. 

How much does it cost in advertising/marketing dollars to bring that new customer in? If it less than $600.00 then you theoretically break even (we know...there's overhead costs too).  Most business owners won't conceive of spending even the initial sales amount of $150.00 in advertising/marketing costs to acquire the customer. But if you know that that customer is worth $600.00 to you over the relationship lifetime, how much would you be willing to spend to get that customer. If you have even a modest amount of capital, you should be spending at least $150.00 to make that customer yours. Yes, your goal is to leverage your marketing to ultimately reduce the amount you spend to acquire customers, but your other goal is to create a marketing program that acquires as many customers as possible in a profitable manner.

Knowing what the true lifetime value of a customer is allows you to plan your marketing accordingly. Not knowing it means you are marketing blindly. Another advantage...most if not all of your competitors don't know about this concept, and you can and certainly should take advantage of this. 

Another interesting note...in a recessionary period, those that do not know the lifetime value of their customers will not market as they should - they will actually cut back their marketing. The fact is that during a down turn in the economy it is easier to acquire their customers from them, and if you perform as you should, they will be yours and will never go back to your competition.

Add another marketing concept called "back-end selling" to "lifetime value of a customer" and you can easily double the actual total lifetime value of each customer. 

We can not only help you understand how these two (and other) marketing philosophies can work together to create massive growth in your sales, but also how to implement these strategies.

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