How Much Money And Time Do You Spend To Bring In A New Client?

An even more important question to ask is, “Do you know the ‘Life Time Value (LV)’ of that client?”

Very few business owners take the time to learn this important secret. They don’t understand what a “life time value” is!

In addition, they don’t realize how viewing customers with this approach can change the way that you do everything in your business.

What does “lifetime value” really mean? It’s pretty simple. Lifetime value is the average amount of money that a customer spends (and the profits that you make) from the first time that the person buys something until his/her last purchase.

For example, if your average sale is $50.00 and the profit on that sale is $15.00, and your average clients buys from you 10 times per year for five years, then your sales to them are $2,500.00 with a LTV of $750.00 in profit. You should be able to determine how many “average” customers you need to have to make the profit that you desire.

If the actual figures on this are not available or are hard to calculate, use your “best guess.” Attempt to figure out what amount your average client will spend during the time that s/he is doing business with your company.

It is even more important to try to determine how much of that total amount is profit. Study the results in detail. You should be able to determine the average number of “repeat” or “backend” purchases that each customer makes after the initial sale.

When you know the average amount of LTV profit that your business will make on each customer, then you will be able to calculate how much you are willing to invest to get a new client.

From our example above, we know that we will make $750.00 of profit on the average client. Knowing this, we also know that even if we spend $250.00 to get that client to buy our products/services, there still will be $500.00 of total profit from that client.

If the majority of the profits that you make on your average customer come from sales made after the initial sale, then it might make sense for you to sell at cost, or even a little below cost, on your first sale. You can do this knowing that you have landed a customer who then will give you the opportunity for additional “repeat” sales.

Knowing your client LTV allows you to focus your marketing efforts. You can target new customers with special “sales” or with other offers designed to bring them in the door.

In addition, you can market to your current and prior customers with campaigns that are designed specifically to generate the repeat business that produces most of your profit. When you can answer the crucial question of “Lifetime Value,” you will be ready to determine how much you are willing to invest to bring in a new client.

Do you know what the lifetime value of your customers is?
If not, what can you do to find out?

I’ll bet you’re thinking it’s your first sale with a new client.

You’ll be surprised to find out that a secondtime buyer is at least twice as likely to buy from you again, when compared to a first time buyer.

The second time client will usually buy again because you have proved that you add value to his/her life. The customer who has had his/her wants and needs fulfilled comes back for more.

That said, it’s very important to know where your profits will be made.

They are either made on the “front end,” at the time of the first sale, or they are made on additional, “backend” sales.

Are your products/services the type that will result in repeat business? If so, your initial sale could be small, but be designed to lead to many larger and more profitable sales.

Most businesses profit more from additional sales than they do from first sales. For that reason, it’s important to know whether you want a customer for the long term or if you’re making a “oneshot” sale.

Is your marketing designed to generate additional sales, or is your focus more “single sale” oriented?

Although “backend” sales are vital to the survival of most businesses, one of the biggest mistakes that many businesses make is NOT capturing valuable client information so that they know which customers are returning to buy again.

If you don’t keep client information showing which customers are coming back to you, then you can’t use this information to stay in contact with them and sell them more products/services.

I have gone into a local hobby store several times during the last three weeks. Do you think they have ever asked me for any of my contact information? Do you think they are keeping track of the models or supplies that I have been purchasing?

Over the course of these three weeks I have easily spent at least $200.00 on various products/services for my son. You would think that they would want to make sure I had a good reason to come back.

If they had asked for my info and tracked the types of things I had purchased, they could then mail (or email) me marketing offers relating to what I had been buying. If they had my contact information, then they could let me know about upcoming sales or special offers.

And if they haven’t got my information, then they probably don’t have information on other customers either.

The point I’m making here is that by not capturing this information, they may be leaving a lot of money out of their cash register.

Many businesses are not overly concerned with making a profit on the first sale to a new client because they have calculated that their profits will come from future sales. In other words, they know that they will profit from repeat sales to existing clients.

If you know that one out of every three customers who makes a purchase from your business will purchase repeatedly, you can take a reasonable loss on your first sale.

The key is getting them in the door the first time. If you can do that, then you know that you will profit in the future. So some of your marketing efforts should be designed to “hook” the first time buyer.

But it is equally important that some of your marketing efforts are designed to bring repeat customers back to you.

Does your marketing strategy include efforts to both bring in new customers and keep the “backend” sales coming in?