Did you know that it costs more to attract a new client than it does to retain an existing one – but how much can you really afford to spend to attract a new client?
Knowing the lifetime value of your clients is the key to creating a workable budget for marketing.
That number should dictate how much you spend. Spend too much and you’re losing money in the long run. Spend too little – and you’re missing out on an opportunity to grow your business.
How to Calculate Your Lifetime Client Value in 5 Simple Steps
1. Start with your company’s total revenue in the past year and divide it by the total number of purchases in the same period. The resulting number is your average purchase value.
2. Next, take your total number of purchases in the past year and divide it by the number of unique clients who made purchases. The resulting number is your average purchasing frequency rate. (Note: If you make a log of cash sales and don’t request an email, then this number may not be accurate)
3. Take your average purchase value and subtract the average purchase frequency rate from it. That gives you the client value per year.
4. Calculate the average number of years a client continues to buy from you. If you’ve been tracking unique purchases this shouldn’t be difficult. This number is the average client lifespan.
5. Now, multiply the client value by the average client lifespan to get the lifetime value of your client.
Let’s look at an example. Here are the raw numbers:
– $100,000 in annual revenue
– 250 purchases
– 150 unique clients
Your average purchase value would be $400. You would then take that number and divide it by 150 to get your average purchase frequency rate, which is 2.67.
Next, you would subtract your average purchase frequency rate from your average purchase value to get $397.33, your client value per year. If you keep your clients, on average, for 10 years, your client’s lifetime value would be $3,973.30.
That’s a very simple example but it illustrates the point. The business would have a lifetime client value of nearly $4,000.
How To Use Client Lifetime Value in Marketing
You know your client’s lifetime value – now what?
The short answer is that you’ve got a piece of information that can help you attract more clients and make better use of your marketing budget.
Every client you have contributes to your company’s success and profitability. Understanding just how much each client is worth to you can help you do a better job of attracting new clients, increasing their lifetime value, and maximizing your profits.
So… if you are a small to medium-sized business and you are looking to grow your business and local reach in the community as well as generate more clients for your business feel free to contact us here: https://napervillelocal.com/get-in-touch/
