One huge mistake business owners make is to base results solely on the initial sale, rather than Lifetime Customer Value.
Here’s why (using some simple figures)…
Let’s say on the initial sale a new customer pays you £1,000. Your gross margin for your product or service is 50%, which means you make £500 per new customer.
However, it costs you £600 to generate this one customer (the cost of your advertising) so you actually made a loss of £100.
Based on these assumptions only, you’d conclude that this approach was not profitable, and no doubt cease using it.
That’s how over 95% of businesses evaluate their success – based on the first transaction or sale.
Here’s the thing…
In most businesses, the customer keeps coming back for more. (And even if you sell a ‘one-off’ product or service, you can and should get referrals from your customers)
That means the customer is actually worth much more to you than the amount generated on the first transaction. This in effect is what’s known as Lifetime Customer Value.
Quite simply, Lifetime Customer Value is the average profit a client generates through the duration of the relationship with you.
A good guide to use is 5 years for the duration (but you’ll know what your average lifetime is).
Let’s use the above example to show you the BIG difference this approach can have…
Now let’s say one new customer generates the same £1,000 per year but they pay this every year for 5 years. Your gross margin stays at 50%. The value over the duration of the relationship, the average lifetime value, is £1,900: (£5,000 x 50%) – £600 (cost of advertising)
Using Lifetime Customer Value, we understand the customer is actually worth £1,900, and not -£100 as originally calculated!
Plus, these figures don’t include any referrals the customer would also bring!
Do you see the difference? All it takes is a simple shift in thinking, and you can leverage your business far more to get ahead of your competition.
And where does this leverage come from?
Well now you know what each customer is worth to you, it means you can actually spend more money to acquire the customer in the first place and still make a substantial profit.
To drive far higher sales volume, you can now explore Irresistible Offers to seal that first sale, safe in the knowledge you’ll still be making substantial profits.
Powerful isn’t it?
If you’re struggling to differentiate yourself from the competition, let’s have an initial discussion to see if there are ways we could work together to get ahead of your competitors. Contact Kevin Robinson from Chrysalis Partners today on 01926 711911 or email@example.com, or find out more at https://www.chrysalismidlands.co.uk/how-we-do-it/