Calculating a Client’s Lifetime Value

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Clients are the life bread of any service-oriented business.  In fact, it’s important to recognize that it would cost you more money in marketing to attain new clients than it would to retain the clients you currently have.

But one client can be more valuable than another; knowing what each one is worth can help you prioritize your work and ensure that you manage client expectations accordingly.

In a recent Entrpreneur.com article entitled “How to Calculate the Lifetime Value of a Customer,” author and founder of ActionCOACH explains that doing so, “…will give you an idea of how much repeat business you can expect from a particular customer…  Once you know how frequently a customer buys and how much he or she spends, you will better understand how to allocate your resources in terms of customer retention programs and other services you’ll need to keep your customers—and keep them happy.”

So what’s the formula?

(Average Value of a Sale) x (Number of Repeat Transactions)

x (Average Retention Time in Months or Years for a Typical Customer)

Sugars gives the example of a gym that charges a $20/month membership and generally retains customers over a three-year period.  The calculation of the lifetime value of these customers would be as follows:

$20 x 12 (months) x 3 (years) = $720 lifetime value (or $240/year)

You can see how increasing your service offerings can significantly increase the lifetime value of a client.  You can also see that the longer you retain your clients, the more valuable they become.

Determining the lifetime value of clients will enable you to determine how much time and money you should spend trying to obtain and retain them.  The two costs Sugars says you should consider are allowable acquisition cost (the amount you’re willing to spend per customer per marketing campaign) and the investment acquisition cost (the amount you’re willing to spend per client knowing you’ll take an initial loss in order to obtain the client and secure that lifetime value).

Recognizing that your clients are worth more than what they pay you this month can help you better manage your business long term.  It can also inspire you to build better customer loyalty so that you can retain clients longer instead of continually working on growing your client base.

Universal Can Help You Obtain More Clients!

If you’re looking for training to help you market your practice effectively and obtain more clients, the Universal Practice Builder (UPB) Program is the course for you.  Also called Marketing on Steroids, this course was designed by our own growth specialists who know not only how to market your specialized financial services, but how to market them effectively to qualified, prospective clients.

The UPB program provides the following:

Flexibility.  You complete the course on your own time and pace.  And the engaging DVDs enable you to return to key concepts and instruction as necessary.

Complete education.  This comprehensive training program will give you everything you need to build a thriving practice.

A qualified professional to answer questions.  For six months you will have access to our professional coaches for personal, professional guidance via phone or email.

The Universal Practice Builder Program will equip you with all the tools you need to grow your business.  If you find yourself lacking the intuitive salesperson personality, call Universal at 1-877-833-7909 to register for this phenomenal program now!!

Resource

Sugars, Brad.  “How to Calculate the Lifetime Value of a Customer.” 8 August 2012 Entrepreneur.com

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