Hey guys, my name is Michael Tominaga. I’m the VP of Digital here Get Found First, and today I’m going to talk to you a little bit about customer lifetime value. Now you may be asking yourself, what is customer lifetime value. Now, this is the total amount of revenue generated from a single client during their engagement with your business.
The reason why this is important is because it dictates a lot of what you can do with your business. For example, if you know what they’re worth, you will also know how much you can spend to acquire them. We all know that it’s cheaper to keep an existing customer than it is to go acquire new ones. But if we know our customer lifetime value, we can then go in and set some guidelines to how much we can actually spend to acquire a new customer.
So in an example, maybe for easy math, we use a customer is worth $1,000. Now in this, we know that maybe we can only spend about 10% of that lifetime value to acquire a new customer. Because maybe our cost of goods or our cost of service for that client might be worth 30%, or 40%. So if we tack on an extra 10%, there, that leaves us with a fairly healthy margin.
So some of these things, when we look at, you know, these metrics, they’re really important with how we strategize, and how we learn to operate our company. Go through this process of figuring out, you know, how much does my client generate for me? And do I have an initial service? Do I have a reoccurring model that provides monthly income? Or do I have potentially a handful of different transactions that happen there? So once you figure out or calculate what they’re worth, then you can start to work backwards to figure out what can I pay to acquire a new customer?
Some of the things that might be important to consider as you go through your book of business or your strategy planning is thinking, how can I provide a better experience to keep these companies longer? How can I also maybe look for ways to upsell services or products? If we’re to increase our efficiency on both sides of those, could we increase our lifetime value and how much they’re worth for business?
Another thing that we talk about when we talk about customer lifetime value is churn. Churn impacts this metric because the longer we keep a client, the higher that value is. And so one thing you will want to evaluate with your book is what is your churn rate? How long do you keep clients on average or customers? Then, by measuring churn, you will be able to figure out a more predictable pipeline for your business, as well as be able to forecast what your sales revenue might look like, over the next year, or foreseeable future. These are all great things to consider when looking at your marketing strategy. If you guys have questions, or you want to learn a little bit more about this, give us a call. Come in and see us we’d love to learn more about your business and help you find a way to increase your customer lifetime value. So thanks for joining and we’ll talk to you guys soon.