Understanding and Profiting from Customer Lifetime Value

Understanding and Profiting from Customer Lifetime Value :

A customer/patient/client’s lifetime value is the amount of profit you will make from when they first favor you with their business to their last transaction. It’s extremely important to grasp this concept.

Here’s what you need to know :

1) Figure how much the average transaction value is.

2) How many times per year does the average customer buy from your business?

3) How many years do they stay with you?

4) What is your average profit margin on each transaction?

Your best estimates or guesses are fine for right now.

Here’s an example :

Let’s say the average new client coming into your business gives you an average $150 on the first visit. They come back one more time over the course of the year spending an average of $75. And they remain an active client for three years. Figure your profit margin is at 40%.

So your customer lifetime profit value will be $150 + $75 x 3 x 40% = $ 270.00 Which means you can spend up to $270 to bring in new clients and still break even.

But here’s how it gets even better. Not only will you make immense profits from each client, but their profit value can be multiplied if you figure their potential for referring more clients to you.

This figure is harder to calculate. But just factor that if you nurture your clients properly some of them will give you referrals. But even better you can program clients with a referral stimulation letter you’ve been provided.

And what’s more, you will learn how to increase the average transaction, the number of times a client returns and how many years they remain an active client. All these things will positively affect your bottom line.

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Understanding and Profiting from Customer Lifetime Value