I wasn’t going to write about this today, but I just had to get this off my chest. We had a call from a client who was considering dropping their #2 ranking adpage because they only got one client from it this month. We caught the client off guard when we asked “what is the average lifetime value of a customer?” She said, “im not sure”. I couldn’t be too hard on her since most businesses never take the time to figure this out. This is something you definitely want to calculate and improve. Don’t worry, I’m no MathWiz either. At the very least, I would create a spreadsheet of all your active clients (clients that came directly from your marketing dollars), and tally how much they have spent on your service including sign up fees, sessions, renewals, and the amount you generated from their referrals. Take that total and divide it by the number of clients in the spreadsheet. Here is a simplified example.

Sally Jones - $1500 in sessions plus $500 by referring Jim Jones = $2000

Jim Smith - $150 (no renewals or referalls) = $150

Tom Thumb - $300 in sessions plus $150 by referring Tammy Thumb = $450

$2600 Total Earned

$2600/3 = $866 = avg lifetime value of a client

It is up to you to determine whether your avg lifetime value is high or low, but now you will know how much each new client is worth to you on average.

Here are a few ways to increase the average lifetime value of a client.

Renewals - First calculate how many sessions people buy before leaving and going out on their own. If your data shows that, for example, 75 % of your people quit after 12 sessions, give them an irresistable offer to renew before session number 12. Of course you will need to try and get a feel for your clients and offer the incentive to the ones you think are going to cancel. By the way, when people do stop using your services, you need to find out why. If you ask them they may not tell you the truth, some people just won’t. So instead, create a page on your website called www.yoursite.com/feedback and tell them to please provide feedback and make it anonymous where you don’t ask for name or email on the form.

Referrals - This requires an entire section of this blog, so for now I will just say if you are not providing incentive, your clients will not help you grow your business. I’m not saying you should bribe them. Something as small as buying movie tickets for them will increase the chances that they bring you up in conversation. Keep in mind there is a difference between providing a gift after they have done something for you, and providing a gift to help create the action of referring.

There are certainly more complicated ways to figure out what a new customer is worth but this will be a great start. If you don’t want to go thru the trouble of gathering all this data from your existing clients, start with the next new client you get and go from there. Best of Luck!

Keith