How to Build Customer Lifetime Value

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Welcome back to the 7-Day Pricing Challenge.
We're almost there.
You've gone through the first five days of this challenge
and hopefully you're starting to shift the perceptions
of your own business,
how you're packaging up your products,
what your value proposition is
and ultimately, how much you're charging
for your products and services.
So it's day six and I'll be talking about something
called the customer lifetime value today.
I'm gonna give you a very brief introduction
and I want you to then in the workbook
work out what the average customer lifetime value is
of your customers.
And this will give you two pieces of information.
So the first piece of information is how much
is a client worth to you and how long do they stay for.
The second piece of information that you can then
garner from that is how much money are you
going to spend on marketing in order to obtain that client.
You can then also work out whether, or how many clients
you might need to achieve the goals that you set out on...
day number two.
And so here we go.
So I'm gonna give you a very simple calculation.
This will all be laid out and explained
in the worksheet afterwards.
It's made up of three different things.
For example, if you're charging for a product
or a package, then you have a follow-up package,
or a support package which goes after that.
The third piece of vital information then is how long
those clients typically stay with you for.
So, for example, if your upfront package is £1,000,
and then you have a follow-up package
which is £50 a month for support,
and the client then stays with you on average
for say, 18 months, you can work out the ongoing
followup versus the churn account for £900
plus your £1,000 for the upfront package,
so it's that number and then those two numbers.
So your average customer lifetime value is £1,900.
If we then ask ourselves, "Well how much money...?"
now we know that the average client stays with us
for 18 months and we're going to get close to £2,000
out of each and every one of our clients,
how much money are you going to spend on marketing
in order to obtain those clients?
Now as part of that marketing spend it could be
some Facebook ads which you roll out,
it could be putting on a free event for example.
Like I did for the Fearless event,
I had 76 people through the door,
but I knew how many products I was going to sell on the day
so I knew that event provided our got-two, long-term,
once one client outfit, which I did,
was going to be worth at least £6,000 to me.
So I was willing to invest £1,000
on putting that event on in order to get
the £6,000 back that I've already worked out
the lifetime value of those clients from that event.
So for example, for that £1900
you might be willing to spend £300
for example, on marketing to those clients.
Now if I were to ask you to spend £300
on Facebook advertising for example
you'd probably laugh in my face and say,
"Bloody hell that's ridiculous that money.
I've done Facebook ads and they don't work."
But if you do it in a campaign-based environment,
if I were to say, "If you give me £300,
and I'll get you a client worth £1900,"
you would absolutely bite my arm off.
And so if might be that yes,
that eats into that package upfront costs,
or maybe if you don't have an upfront package
and you just have a subscription-based service,
it could be that you're willing to sacrifice
the first five or six months' worth of that
recurring revenue in order to secure that client
for the following 12 plus months.
And equally, if that churn rate is too low...
so a lot of people aren't necessarily
always aware of their numbers,
so they don't know how long their clients stay with them for
and they don't know... it may just be that
you just have an upfront package and that's it,
they don't then focus on getting that repeat business back
and increasing that customer lifetime value.
If a client comes in and out,
and they don't repeat purchase from you,
that could be something that you're doing wrong,
or perhaps you're not remarketing to them,
or perhaps your offers aren't compelling enough,
then you need to work out how to build
compelling offers to retarget people and market people
as well as collect new clients.
It's actually the clients who keep on coming back
time and time again that you create that
customer loyalty through and they refer people
into your business.
Simple exercise on the worksheet.
If you charge upfront for your packages, how much is that?
What's your support package that comes thereafter?
And how long on average do your clients stay with you?
Add and multiply those three figures together to get your
customer lifetime value,
and then just ask yourself this question,
"How much money would I be willing to spend
in order to get that client?".
So that's day six.
We've just got one more day to go,
and don't forget to complete the worksheet,
share it in the groups; let's be accountable to one another,
and give each other some tips and advice
and things like that.
If you've got any questions do fire them across to me,
and then I will see you again for the final day,
day seven, tomorrow.
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How to Build Customer Lifetime Value

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