Maximizing Lifetime Customer Value

PEP.NET Educational Moment (11/15/12):
Maximizing Your Lifetime Customer Value (LCV)

‘Advertising is merely another form of statistics’ — Hartman Jule

What Is Lifetime Customer Value?

  • The amount of money a client spends with you over the average length of your relationship with them is your lifetime customer value.
  • This is a very important number!  It allows you to:
    • Determine how much money you can spend to get and keep a new client.
    • Measure your LCV and improve it!
    • Shift your focus from quarterly to long term.
    • Determine which customers are most profitable and fire the losers!
    • It allows you to predict income in the future based on client acquisition numbers.
    • Most of a client’s value to your business is loaded on the back end.
      • The first time you get a customer in the door is the most expensive!
      • All of your money will be made on the 2nd, 3rd, 4th, etc. visits because you don’t have all of the upfront acquisition and lead generation costs.

Who Are My Customers? = Any honest assessment of your LCV starts with this question.

  • Contractual Vs. Non-Contractual = I’d rather have determined and repeatable income from clients that are under contract.
  • Customer Information Vs. No Customer Information = The value is always in your list!
  • Recency = How long since they’ve been in?

The “Quick & Easy” Method For Determining Your LCV

  • Find the average amount a customer spends in a year (A)
  • Find the average length of time you retain a customer (B)
  • Account for any other variables (i.e. referrals)
  • A * B = Lifetime Customer Value

Customer Profitability =  Segment your list into three groups and treat them accordingly:

  • 1st Tier = Reward (High Profit)
  • 2nd  Tier = Grow (Low Profit)
  • 3rd Tier = Fire (No Profit)

Why Do Customers Leave?

  • 1% Die
  • 3% Move Away
  • 5% Follow The Advice Of A Friend
  • 9% Change For A Better Value
  • 14% Miscellaneous
  • 68% Because They Don’t Feel Wanted

3 Ways To Increase LCV:

  • Upsells (i.e. French Fries)
  • Increase Frequency (i.e. Newsletters)
  • Increase Referrals (i.e. Campaigns)

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