The life time value of a customer is how much a customer will spend with you over the course of “their life” in your market.
This is typically the final piece of the puzzle, because small tweaks here can make dramatic, multiplied changes within your business.
There are three main ways to grow your business, but I like to extend this out to five because of the results I’ve created for clients and experienced in my own business.
Increasing Customer Traffic.
Simply increase the number of ideal customers who are passing through your business or value ladder.
Increasing Customer Order Value.
This is to increase the price of each of your products or services (which you should be doing routinely), combined with up-sells and cross-sells.
Increasing Buying Frequency.
Increasing the frequency creates more reasons for a customer to buy from you, whether they buy more per month or per year.
80/20 Best Customers.
Hypothetically, let’s say you have 100 customers. 20% of them are going to be willing to buy and spend more.
So for those 20 best customers you create ways to offer them an enriched “elite” experience with your business. Give them more reasons to do more business with you at a higher price.
If we use 80/20 again, let’s say 20% of your customers refer you. Make sure you have a system in place to track who is making the referrals and treat them like gold.
Given the right treatment, 20% of those who do refer you would literally sing your praises and even become brand ambassadors, referring even more business your way.
Ensure your business has a referral engine in place to track and accommodate these people.
Small Tweaks Multiplied Gain
Say you have all of these dials to turn at any given moment, what impact do you think they could have on your business?
If you kept your prices the same but had more ideal buying customers coming in, you increase your sales – right?
If you had the same amount of customers coming in, but increased your prices, you increase revenue without having to acquire new customers.
Increasing all of the key elements of business growth is going to allow your profits to soar.
Customer Increase +20%
100 + 20% = 120 customers paying £100 = £12,000
Total 20% increase in sales
Price Increase +20%
100 customers x £100 + 20% price increase = £12,000
Total 20% increase in revenue
Frequency Increase from one to two.
100 Customers buy twice a year £100 x 2 = £20,000
Total 100% increase in frequency
Individually these numbers are pretty good, but most business owners only focus on one or two of these throughout the entirety of their business life.
What I aim to achieve with all my clients and what you should also be aiming at is an increase in all areas and to push as far as the market will allow while only dealing with ideal buying customers.
Multiplying your efforts
100 customers at £100 once a year = £10,000
120 customers at £120 twice a year = £28,800
Top 20 buy a 3rd time same year £120 = £31,200
Total 212% increase in revenue
I’ve kept the numbers low for demonstration purposes as I’m sure your average sale price is much more than £100 a time.
But as you can see, turning up four of the dials in this system increases revenues by 212%, from £10k to £31.2K which is not a figure to sneer at.
Not to mention having a referral engine in place to have your best ideal customers refer even more ideal customers just like themselves.