Customer Lifetime Value – The Key To Maximizing Your Profits!

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The greatest asset to your business is your Customer,

specifically, your Customer Lifetime Value.

In my many years in Sales and Marketing, I’ve met many CEOs and

business owners who don’t have much clue as to what Customer

Lifetime Value is, much less its importance and the impact it

has on their bottomline. To most of them, what matters most is

to increase revenue by continuously acquiring new one-shot

customers.

This is one of the fatal mistakes that many business owners make;

it’s a sad scenario, but it’s also the reality. Let me tell you

something: it’ll cost you 5 times more to attract a new customer

than it is to bring one of your past customers back to you.

I don’t know you personally, but if you’re a smart business owner,

you’ll understand that every cent you invest in advertising is

going towards acquiring new customers. You’ll also realise that

once you’ve acquired the customers, you just can’t afford to let

them go.

So what’s Customer Lifetime Value?

Customer Lifetime Value is defined as the total value, in

monetary terms, of your average customers spanning the entire

period that these customers are likely to do business with you.

It’s the potential contribution of your customers to your

business over a period of time.

Here’s how to calculate your Customer Lifetime Value:

1). Let’s say you’ve 2,000 steady customers and these customers

remain with you for an average of two years; for the past two

years, your net profit was $700,000.

The Customer Lifetime Value can be calculated as:

$700,000/2,000 = $350.

What this means is that over an average customer lifespan of

two years, each new customer you could acquire and keep is worth

$350 to you in profits.

2). If you do not have the actual figures, you’ll have to

estimate. As the Customer Lifetime Value will have a significant

impact on your bottomline, my advice is that you be prudent and

conservative in your estimation.

Why is it so important to you and your business?

Lifetime Customer Value is important to you and your business

for the following reasons:

1). Knowing the Lifetime Value of your customers is crucial to

you and your business as it serves as a benchmark without which

you’ll be groping in the dark.

When you know the Lifetime Value of your customers, you can

determine how much time, effort and money you can afford to

invest to acquire that customer in the first instance.

In other words, you can invest more today to reap a much larger

profits later down the road as long as your cashflow is healthy

and can support it.

Every marketing campaign that you undertake costs you money as

well as reaping you benefits such as increased sales, enhanced

corporate image, etc. But how can you be sure that the benefits

would outweigh the costs or investments? This is where knowing

the Customer Lifetime Value is so powerful – it helps you to

determine this even before you launch your marketing campaign.

2). When you realize that customers are actually an ongoing

stream of revenue as opposed to a one-shot sale, you can re-focus

your marketing efforts.

Instead of contantly struggling to acquire more and more new

customers, you can now begin to focus on keeping your existing

customers longer and selling to them repeatedly, in other words,

repeat sales.

You may spend more like making stronger and more attractive

offers than your competition in acquiring new customers now who

will be your money spinners tomorrow.

This makes sense because you now know that on average you’ll more

than make it back over the years that the customers are with you

and therefore you could afford to break even or even lose money

now in acquiring the new customers.

Start shifting your focus to Customer Lifetime Value and maximise your profits today!

Start to have a proper understanding of Customer Lifetime Value

because it’s key to the success of your business. It’ll allow

you to acquire more customers than your competition through

better and more attractive offers; it’ll dramatically increase

your bottomline through more repeat sales and shoot your profits through the roof.

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