How much is a customer or client really worth to you? It isn’t about that first sale or service, but their lifetime value that is key to understanding your possible investment in gaining a new lead.
Marketing and advertising are often seen as ‘how little can I spend’, but that is not really the best way to get a good return. If you knew you could afford a little more, and got a much better return, wouldn’t you do it?
So how do you calculate your customer’s real worth?
If you are selling a product or service for £20 – you may see this as what a customer is worth to you. However, what if this is a monthly purchase or service? Over 3 months that customer is now worth £60. If your average customer stays with you for 2 years – Your customer lifetime value (CLV) is £240.
This should give you a much different view on your marketing cost. To spend £25 to get a £20 sale wouldn’t seem worth it. You may only want to spend a couple of pounds at the very most.
However, to spend £25 on a £240 value return – now that’s much more appealing. It gives you more budget to work with. If your competitors are fishing in the ‘couple of pounds’ pool, then you can stand out by using professional graphic design, higher cost per click rates on advertising, adding bonuses or incentives to encourage the sale, or an exceptional customer experience once they have purchased.
The same goes for word of mouth or referrals. What incentive could you give to a client to gain another £240 CLV (customer lifetime value)? Again, the higher budget could mean you can offer something that would incentivise them more to take time out of their day to help you.
So, don’t think of how little you can spend, but what potential customer value you can gain by having a bit more budget to work with.
Calculate your CLV’s – you may have more than one – and track what difference that makes to your marketing budgets. Do a trial and see if it brings in more potential ‘£240 customers’. If you need a little help in working this out – just ask.