Customer Lifetime Value - The Key To Maximizing Your Profits!

The greatest asset to your business is your Customer, specifically, your Customer Lifetime Value.

In my many years in Sales and Marketing, I've met many CEOs and business owners who don't have much clue as to what Customer Lifetime Value is, much less its importance and the impact it has on their bottomline. To most of them, what matters most is to increase revenue by continuously acquiring new one-shot customers.

This is one of the fatal mistakes that many business owners make; it's a sad scenario, but it's also the reality. Let me tell you something: it'll cost you 5 times more to attract a new customer than it is to bring one of your past customers back to you.

I don't know you personally, but if you're a smart business owner, you'll understand that every cent you invest in advertising is going towards acquiring new customers. You'll also realise that once you've acquired the customers, you just can't afford to let them go.

----------------------------------
So what's Customer Lifetime Value?
----------------------------------

Customer Lifetime Value is defined as the total value, in monetary terms, of your average customers spanning the entire period that these customers are likely to do business with you. It's the potential contribution of your customers to your business over a period of time.

Here's how to calculate your Customer Lifetime Value:

1). Let's say you've 2,000 steady customers and these customers remain with you for an average of two years; for the past two years, your net profit was $700,000.

The Customer Lifetime Value can be calculated as: $700,000/2,000 = $350.

What this means is that over an average customer lifespan of two years, each new customer you could acquire and keep is worth $350 to you in profits.

2). If you do not have the actual figures, you'll have to estimate. As the Customer Lifetime Value will have a significant impact on your bottomline, my advice is that you be prudent and conservative in your estimation.

----------------------------
Why is it so important to you and your business?
----------------------------

Lifetime Customer Value is important to you and your business for the following reasons:

1). Knowing the Lifetime Value of your customers is crucial to you and your business as it serves as a benchmark without which you'll be groping in the dark.

When you know the Lifetime Value of your customers, you can determine how much time, effort and money you can afford to invest to acquire that customer in the first instance.

In other words, you can invest more today to reap a much larger profits later down the road as long as your cashflow is healthy and can support it.

Every marketing campaign that you undertake costs you money as well as reaping you benefits such as increased sales, enhanced corporate image, etc. But how can you be sure that the benefits would outweigh the costs or investments? This is where knowing the Customer Lifetime Value is so powerful - it helps you to determine this even before you launch your marketing campaign.

2). When you realize that customers are actually an ongoing stream of revenue as opposed to a one-shot sale, you can re-focus your marketing efforts.

Instead of contantly struggling to acquire more and more new customers, you can now begin to focus on keeping your existing customers longer and selling to them repeatedly, in other words, repeat sales.

You may spend more like making stronger and more attractive offers than your competition in acquiring new customers now who will be your money spinners tomorrow.

This makes sense because you now know that on average you'll more than make it back over the years that the customers are with you and therefore you could afford to break even or even lose money now in acquiring the new customers.

Start shifting your focus to Customer Lifetime Value and maximise your profits today!

Start to have a proper understanding of Customer Lifetime Value because it's key to the success of your business. It'll allow you to acquire more customers than your competition through better and more attractive offers; it'll dramatically increase your bottomline through more repeat sales and shoot your profits through the roof.

About the Author

Copyright 2004 by Larry Lim, MarketingSphere.com

Larry Lim is a practising marketing strategist and tactician who dishes out highly effective marketing strategies and tactics that will enable you to successfully start and grow your business on the Internet.

Check out his Internet Marketing Strategy website that is jam-packed with internet marketing secrets and softwares that will skyrocket your sales, and shoot your profits through the roof.

____________________

Advertisement: Honest Riches - Click Here!

Advertisement: Lost AdWords - Click Here!

Advertisement: Get $1 Million A Month In Google Pay-Per-Click Ads Free! - Click Here!

Advertisement: Who Loves Money? - Click Here!

Advertisement: SEO Elite, the GrandDaddy of SEO Software - Click Here!

---

Online Advertising Versus Traditional Media Advertising

Before I compare today's online advertising with traditional media advertising I will make an analogy.If you've been on the Internet for as long as I have, you... Read More

Seven Secrets For Building Customer Loyalty In Your Restaurant

Imagine how much your sales and profits would increase if each of your customers come back just one more time a week or a month. You would... Read More

Off the Shelf Small Business Mapping Software

All small businesses can benefit from inexpensive off the shelf CD Rom mapping software. If you own a business you need to where your customers are coming... Read More

Most Wanted Response... How To Make It Work

"When I walked into the grocery store last Saturday, I was just 'browsing.' But... their MWR was obvious. Because,... I could smell the 'hot fresh baked bread'... Read More

Stop Searching - Joint Ventures are the Solution to Doubling Your Business

First, define the end user (or ideal client) of your product. Many times when I ask people who their ideal client is they will tell me "oh... Read More

Utilizing Your Best Hidden Asset To Increase Sales

You probably already have in your possession one of the most valuable and powerful assets you can possibly own. But if you're like most business people you... Read More

In Sickness And In Health

I recently drove by a business that had a sign out front that read "Closed due to illness". This meant that the cash flow would stop until... Read More

How to Win a Price War

Any economics student can tell you that price is a matter of supply and demand. The market will bear a certain price point and settle into equilibrium.... Read More

Competitive Research and Google

It all started out with an email message: "I am starting a new one of a kind company ... at least I think I'm one of a... Read More

Marketing Strategy - Shift the Focus

Most of the service providers I've worked for or with don't like marketing or selling. In fact, a lot of them will say they "hate it." At... Read More

FREE Means MORE Business

Why give freebies?We have all seen freebies at trade shows and we have all probably seen the person that goes from booth to booth collecting as much... Read More

Notable News - Its Not About You!

You enjoy what you do. In fact, you love your product and want to tell everyone about it. Well, I hate to tell you this, but no... Read More

Marketing Effectively to More Than One Audience

What's a small business owner to do if they have more than one audience to market to? Perhaps they need to attract clients but they also need... Read More

Postcard Direct Mail Marketing Tips And Ideas

Postcards are perhaps the least expensive way of reaching a large number of people with your sales message. Although they have their drawbacks, they are cost-effective at... Read More

Medias Dirty Little Secret

I'm constantly amazed by all of the media reps from all of the different media outlets that can help your advertising to "reach the right people."Why am... Read More

How to Expand Your Target Markets

Are your products or services geared towards only one target market? You can increase sales and profits by increasing your target markets. Below are some creative ways... Read More

After The Mailing Is Done, What Happens Next?

If you're doing any sort of marketing effort, whether it's getting news coverage or sending a postcard, you must be prepared for what happens next. If you're... Read More

Practice Marketing: How to Answer What Do You Do? to Increase Prospects, Publicity and Profits

"What do you do?""I'm a CPA. What do you do?""I'm a stockbroker."End of conversation.And the end of an opportunity to promote you and what you do in... Read More

A Complaint? It?s a Compliment! - 7 Tips for Dealing with Complaints at Trade Shows

A Complaint? It's a Compliment!What made you mad last week?In the past week, how many times were you upset by something? What action did you take? Complain... Read More

Radio Ads That Get Results

Radio advertising can be a small business's best friend. It's relatively inexpensive, very effective, and allows you to target your audience pretty specifically. It's also a level... Read More

The M-Word

It was a real eye-opener to hear the perceptions people have about what it means to market professional services, as well as the anxiety the "m-word" (marketing)... Read More

The Day I Learned to Start Saying No

It was the fall of 1998 when I had just started my first business as a marketing communications writer. Most of my clients hired me for newsletters,... Read More

4 Ways to Get a Prospects Attention Fast

Can you remember the last dozen advertising messages beamed at you today? Can you remember even one of them? Most people can't.This illustrates a major obstacle you... Read More

Full Color Postcard Marketing: 7 Reasons Why They?ve Become the New Direct Mail

The most crucial aspect of having a high response rate to any direct mail marketing list is to keep your business' name in everyone's mind, constantly. But... Read More

Building Skills in Information Marketing will Boost Your Business

Yesterday I was sitting on a train going into London when I thought I'd take a look around the carriage just to see what everyone was doing.... Read More

Marketing Planning Made Simple - Another Small Business Power Tool

Marketing planning must be really difficult and complex, otherwise why would there be so many books written on the subject ? right?Well, I'm just enough of a... Read More