Do you know how much each customer is worth to your business?

Do you know how much each customer is worth to your business?

Are you a little fuzzy on this? Do you know these numbers? The answer to this question plays an important part in whether you will grow your business. I would say this one of the business concepts every business owner needs to get their heads around. I know it's a big claim. Let me explain. When you know how much every customer is worth to you, then this changes the growth dynamics of any business. This question forms the basis of Customer Lifetime Value Concept (CLV). Or as some people call it the Lifetime Customer Value (LCV) I like CLV because it's based on the customer. I sure you're thinking CLV sounds like another fancy pants term Accountants & Stock Brokers use . There always wheeling out impressive words & acronyms to razzle dazzle you, with how clever they are. EPV - Earnings power value is a technique for valuing stocks by making an assumption about the sustainability of current earnings and the cost of capital but assuming no further growth... K-Ratio A ratio that is used in the performance evaluation of an equity relative to its risk... P-Value is the level of marginal significance within a statistical hypothesis test, representing the probability of the occurrence of a given event... What the heck!...my heads spinning... I could rattle 100's of these if I thought this might impress you. But I'm not going to insult your intelligence. To be honest, I don't use these terms, I'm not even sure I understand what half these actually do. I cheated I looked them up in a financial dictionary. Oh so clever. I'm sure these fancy finance terms have there place or reason for existing. So I'm not going to baffle you with these high tech financial jargon. Here's the thing if you grasp the Customer Lifetime Value Concept (CLV). Then you will be able to pay as many Accountants & consultants to look up these words for you. If you can't think of anything better to spend your money on. I would say, from my dealings with most Accountants they are not even aware of CLV. Or... If they are, then they have no idea how to even apply CLV to a business. There more focused on costs & expenses, & where you have been. (Which is important but it's not going to help you grow your business.) So do I have your attention Yet? I hear you saying “Ok enough! What the heck is this CLV Customer Lifetime Value thingy anyway? And what's it got to do with me?” Drum roll Write this down.

Your Customer Lifetime Value is:

“How much every new customer spends with you over the Lifetime with your business...”

So what the big deal? When you get CLV Customer Lifetime Value. It will help you make important business decisions on sales, marketing, product development, and customer support. Most restaurants have tried a form CLV without realising. You remember, when all those voucher entertainment books came out You know the ones. buy One main & get another main Free. Or similar types of deals. These vouchers should have been a goldmine for restaurants. A lot of restaurants took them with disdain. The problem is because they didn't understand the reasoning behind this concept. Most failed badly. Most restaurants treated these as just a transaction rather than a chance to build a relationship and get ongoing customers. So instead of trying to wow these people with phenomenal service & amazing food. They were treated like 2nd class second citizens. Squeezed into some tight corner, & given the waiter on training wheels. The restaurant owners thought they were getting a dud deal. They had to give away a free meal. For What? I’ve heard the restaurant staff say “cheap bastards” “How stingy” So they missed the point. They were looking at these people, treating them like they were an annoyance. That’s why all those Groupon Discount sites came & went. They did not teach you or show you why giving away a ** Free Meal ** was such a good idea. Each new customers will catapult your profits by compounding the Customer Lifetime Value Concept... Repeat customers put heaps of money in your pocket... I don't want you to make the same mistake as these restaurateurs. Treating these new potential customers as an item on the Balance Sheet, just like an accountant. So I don't confuse you with the complicated Harvard University definition, let me take this back a few steps. So you get this. If I studied at Harvard School of Business then I could give you some mind altering algebra formula like this Relax don't panic you don't even need this. It's Ok to know this formula if you want to pass Uni Exam. I would rather have a business that grows & makes heaps of money. So if that's all right with you? I'm going to show why the CLV Customer Lifetime Value will change your business. So let's dive in, with a little Business Marketing 101 OK? “Business has only two functions -- marketing and innovation. All the rest are costs.”...“** Peter Drucker the father of modern business** So most areas in your business cost money But, Marketing makes You Money... So we need to treat Marketing as an Investment... If you were investing in the Stock Market then you would check to see how well your shares perform... So without monitoring & reviewing you don't know if you're making money or losing money on your shares... Without tracking, you won't know how your portfolio is performing better or less than expected to reach your investment goals... Would You Be Happy to Invest in a Manager, Who Didn't Know or Even Check Your Numbers & How Your Portfolio is Doing? No Way That's Just Dumb! - You might as well invest (gamble) your money on a nag at Flemington. You Can't Manage What You Don't Measure... So you need to know your numbers. So If You're Going To Invest In Your Marketing, Then You Need To Know Your Numbers... So this forms the background for CLV What's Your Customer Lifetime Value (CLV)?

What's Your Customer Lifetime Value CLV?

CLV is your projected revenue that your customer will generate during their lifetime...or Your annual customer revenue X average life of a customer (in years) When you know exactly what each new customer is worth to your business. You will know how much money you can spend on marketing to get that customer. With each new customers you bring to your restaurant will immediately represent much more to your bottom line profits than you've ever thought possible.

How To Work Out Your Customer Lifetime Value

So we have to do a little bit of Maths

Warning Geeky Maths

BUT... if you get your head around CLV Concept you will be able to get More Profitable Customers... How much money are your customers worth to you? Let's look at the maths & assume we are running Bob's Gardening Services Bob The Gardener knows all about Customer Lifetime Value //flic.kr/p/oAJwq9

So How much can Bob spend to get a new customer?

We'll make a couple assumptions for Bob The Gardener

How much does it cost you to acquire a new customer? (Cost for Advertising, Website, free Samples etc)

$250

What is your average sale amount per customer? (Per Garden)

$70

 Add up your total dollar sales for the year & divide then by the total number of sales transactions...  

You make an average 50% Profit for each job...

50%

So that's $35 profit for every garden

$35

How many times a year does an average customer buy from you? Let's say 12 Times a year

12

 Take your total number of sales transactions for a year and divide it by the total number of customers...  

So to get your annual profit multiply by 12

$420

How many years does your average customer buy from you?

2.7 years

So now multiply $420 x 2.7 years

$1134

 To work this out Suntract your cost Acquistion ($250) from $1134  

This gives you your CLV Customer Lifetime Value

$884

So Bob's CLV Customer Lifetime Value would be $884

Bob's CLV stops him treating each gardening job as 1 Off Transaction... Bob's competitors are still trying to use Old School Math for their Marketing... So they still think they're in with a shot if they budget 10% for their Marketing… This is accountant mindset marketing. Bob can Spend 10 x More than his competitors to acquire a Customer because he understands the CLV Customer Lifetime Value Concept.

So Who Wins?

Bob can use the Power of CLV to Dominate his Market! “He (or She) who is able & willing to spend the most to acquire a customer - Wins”Dan Kennedy Each new customers will catapult your profits by compounding the Customer Lifetime Value Concept...

Repeat customers put heaps of money in your pocket...

If you want to build a long-term sustainable business, then you've got to rely on repeat customers. As per Harvard Business Review, a 5% increase in customer retention will help you raise your overall profits by 25%. So just so you get this. Your Customer Lifetime Value gives you a busy restaurant - Busy Mission Inn //flic.kr/p/8Vro2s9 So imagine if this was your Business your CLV Customer Lifetime Value would be $884. How would you be treating every customer knowing they are worth $884 to you... Once you get this, they are no longer just cheap person getting a subsidised meal. Are they? I bet this changes how you will treat those customers. If you give them your best effort, your best food, your best service then they will keep coming back. Because others restaurants think these people are just taking advantage of them. They don't know what you know now. If you spend more to get a customer than your competition because you know once they eat at your Restaurant then they will keep coming back. **It cost 8 x more to get a new customer. **So once you get them. You have deliver a gastronomical experience, so they just want to come back & bring their friends. So next time someone books & tell's they've got a Get one Free Voucher. Get excited you now have an opportunity to shine. Show off your restaurant... Give your best. Do you want me to let you into secret Psychology Tip? (regarded as the study of behaviour and mind, embracing all aspects of conscious and unconscious experience). It's based on the Principles of Influence called Reciprocation. When you give away your best stuff away, people start imaging if that's what I get for free, imagine what I'll get if paid for this. Then they feel they owe you. So you should treat every customer whether they come for half price or pay full tilt as if they are royals. This how you grow your business.

Here's the other side of the coin.

If you start taking them for granted & give half baked service or ordinary food they will leave go & elsewhere. Remember Bob the Gardener. If after 2 or 3 months he starts turning up every now & then or wrecked their prize rose because he got a deal on some cheap fertiliser. Now he just flushed all his good work done the Toilet instead of this customer being worth $884. Now he's lucky if he gets $210 or $350 because he got greedy. So he just blew $500 in CLV. Don't fall into this trap. Every new customer that keeps coming back just keeps putting money in your bank. So you can keep spending more to get more customers. That's how you grow your business using Customer Lifetime Value Give them your best so they just have to come back for more.

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