Now that you’re almost through with your first week of this course, it’s time for your first GOLD NUGGET.
You’ve made some minor changes to your mindset over the last few days, but the major shifts in thinking are what will propel your business to great heights. To get you started on that path, let’s discuss a small piece of information that ALL businesses should know, but don’t.
Knowing the answer to this question can transform your business over night and give you a competitive advantage that others cannot duplicate.
What Is The Lifetime Value Of Your Average Customer?
So, what exactly is “lifetime customer value”, how do you calculate it and why is it so important?
Let’s take Rhonda’s Restaurant for example and see how knowing and using this information should change the way you think about your marketing dollars.
Since Rhonda’s been in business a few years, she knows a few things about her customers, including the three pieces of information she needs to determine the lifetime value of her customers — the total dollars generated from a customer over the entire relationship with that customer.
- First, she knows that her average ticket amount is $15.00
- Second, she knows that her customers eat at her restaurant an average of four times a year
- Third, she knows that her customers eat at her restaurant an average of 2.5 years
And by multiplying these numbers, Rhonda knows that her lifetime customer value is $150 (15x4x2.5).
Easy enough math you say, but what does it mean?
It means that instead of viewing her customers as being worth $15, like all her competitors, and fighting over the same razor thing margins, she can actually spend more money acquiring customers knowing the bulk of her profit is generated later on.
And all things being equal, the one that spends the most (i.e. advertising), gets the most customers.
So what can you learn from Rhonda?
She’s provided at least three valuable lessons here:
- You should collect enough data to determine your lifetime customer value
- You should have a backend of products/services or some other means of creating customer continuity
- You should spend as much as you can to acquire new customers once you have your backend in place
If you’re in the business of having loyal customers (and you should be!), calculating your lifetime customer value can be one of the most important things you ever do.
Get to work on yours today.