Small Business - Do You Know the Lifetime Value of Your Customers?
When planning any marketing campaign, it is important to know your numbers.
Otherwise, you do not know exactly what your profits will be and how much you can afford to spend on bringing in new customers.
You not only need to evaluate your cost of acquisition (how much it cost you to gain a new customer), you should also know the lifetime value of a new customer.
What is Lifetime Value? This is the amount of revenue you gain from a customer over the lifetime of your association.
Let's say, for example, you are a hair dresser.
You acquire a new customer who comes in and spends $20 on a haircut.
You know that a customer typically gets their hair cut every 6-8 weeks or approximately 7 times per year.
At $20 per visit, that amounts to $140 per year.
And let's say that you know that, on average, you retain a customer for 5 years.
That would make the average lifetime value of a new customer to be $700.
Once you know those numbers, you can see the big picture and you can offer more incentives to gain new customers knowing that even though you may have only broken even on the first purchase, or even given a product free to acquire a new customer, you will be well ahead of the game in the long run.
So what if you decided to run a promotion where your first haircut was free or half off.
Yes, you might think that you are losing $10-$20, but if you look at the lifetime value of your new customer you will know that it was a wise marketing strategy because you are still gaining $680-$690 out of that customer which makes it a good business decision.
The more you know your statistics and averages, the better equipped you are.
Learning to market effectively with the big picture in mind will allow you more flexibility and less reluctance to make very attractive offers to new customers.
Your good service and quality products will keep that customer coming back for more.
Strive to increase your customer lifetime value and your numbers will continue to grow.
One way to improve the longevity of a customer and to increase the amount they spend with you on a repeat basis is to actively engage in email marketing and social marketing so you are always in touch with your buyers.
Otherwise, you do not know exactly what your profits will be and how much you can afford to spend on bringing in new customers.
You not only need to evaluate your cost of acquisition (how much it cost you to gain a new customer), you should also know the lifetime value of a new customer.
What is Lifetime Value? This is the amount of revenue you gain from a customer over the lifetime of your association.
Let's say, for example, you are a hair dresser.
You acquire a new customer who comes in and spends $20 on a haircut.
You know that a customer typically gets their hair cut every 6-8 weeks or approximately 7 times per year.
At $20 per visit, that amounts to $140 per year.
And let's say that you know that, on average, you retain a customer for 5 years.
That would make the average lifetime value of a new customer to be $700.
Once you know those numbers, you can see the big picture and you can offer more incentives to gain new customers knowing that even though you may have only broken even on the first purchase, or even given a product free to acquire a new customer, you will be well ahead of the game in the long run.
So what if you decided to run a promotion where your first haircut was free or half off.
Yes, you might think that you are losing $10-$20, but if you look at the lifetime value of your new customer you will know that it was a wise marketing strategy because you are still gaining $680-$690 out of that customer which makes it a good business decision.
The more you know your statistics and averages, the better equipped you are.
Learning to market effectively with the big picture in mind will allow you more flexibility and less reluctance to make very attractive offers to new customers.
Your good service and quality products will keep that customer coming back for more.
Strive to increase your customer lifetime value and your numbers will continue to grow.
One way to improve the longevity of a customer and to increase the amount they spend with you on a repeat basis is to actively engage in email marketing and social marketing so you are always in touch with your buyers.
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