How to Ethically Exploit The Lifetime Value of Your Customers
To at least 97.73% of Business Owners and Entrepreneurs (my estimate anyway and it’s probably higher actually! . . . this topic is as welcome as a festering boil on the inside of their left butt cheek and therefore they ignore the true value of it.
Sure, most of you have heard about the Lifetime Value Of YOUR Customers, many even rattle it off in conversation or in print as though they know something about it. The truth is . . . it’s the ONE aspect in business where ignorance is high and costing people way too many sales.
YOU need to understand and apply this strategy TODAY!
Yes . . . I am talking about Lifetime Value Of Your Customers. (L.V.O.Y.C.)
One of the problems I encounter is . . . many people, consider L.V.O.Y.C. too difficult to work out and therefore they stick their head in the sand like an ostrich and ignore it . . . rather than finding the solution.
In simple terms, Lifetime Value Of YOUR Customer is the total sales value your average customer is worth to you over the average time you keep each customer.
Let’s say in your business, your average customer stays with you for 3 years, spends $1,000 a year with you. They are worth $3,000 in gross sales to you in Lifetime Value.
Now, if you knew the next prospect who walked past your business, telephoned you, visited your website, or responded to a direct mail campaign . . . or any other marketing medium . . . was worth $3,000 to you, ask yourself this question:
“How Much Would YOU Be Prepared To Spend On Such a Prospect Knowing They Are Worth $3,000 To YOU Over The Next 3 years?”
Would you spend $500 on them? Would you spend $1,000 on them? OR Would you be a tighter than a fishes ass and say – “I’m not spending a darn penny on them because they’ll expect everything for FREE?”
Could you afford to lose on your first sale . . . knowing what they are worth to you on back end sales?
The answer is YES!
Each business owner will have C.O.G.S. (Cost Of Goods Sold) and the amount ‘spent’ will vary. Even on the Internet!
Let’s assume your $3,000 in Gross Sales, costs you $1500 to produce or purchase . . . leaving you with a clear Gross Profit of $1,500 before you cover any operating expenses.
This is like having a guaranteed win at the races.
Would you bet $500 on a horse knowing you would return $1,500 in clear winnings?
I know my answer . . . do you?
Yes, of course you would, you would do so until the cows come home.
I am not saying lose money if you don’t have too and obviously each persons cash flow is different . . . however you can surely see the major benefits of knowing on average, what your customers are worth to you.
What you need to clearly understand about L.V.O.Y.C. is this . . . you want to work out an average because we all have customers who spend ‘stuff all’ and others who spend a fortune.
Focusing on the more profitable customers will give you a false Lifetime Value, leaving you wide open to failure.
Here’s an example of Lifetime Value Of Your Customers
You need to assume you are the business owner and you are following up with your customers using proven direct response marketing strategies and online marketing and social media strategies etc.
Assume you own a computer store and on average your customers buy a new computer every 2 years and you keep them for 5 years.
You also do great follow up marketing so your customers also come in and purchase their consumables from you.
Your Gross Profit on each computer is $300 and in the first year, on average, each customer spends another $250 on consumables (this is a low figure to by the way to demonstrate how powerful L.V.O.Y.C. is).
Here’s How to Calculate Your Lifetime Value Of Your Customer:
Year 1: Purchase Computer – $300 Gross Profit
Year 1: Consumables – $250 Gross Profit
Year 2: Consumables – $250 Gross Profit
Year 3: New Computer – $300 Gross Profit
Year 3: Consumables – $250 Gross Profit
Year 4: Consumables – $250 Gross Profit
Year 5: New Computer – $300 Gross Profit
Year 5: Consumables – $250 Gross Profit
LIFETIME VALUE OF YOUR CUSTOMER IS: $2,150
Do you think you would look at the next prospect who came into your store, differently, if you knew they were worth $2,150 to you as opposed to the normal attitude of a one off sale which is worth a lousy $300?
Imagine a person now walks into your computer store and they bring you a competitor’s specification on a computer system which is selling for $1,299 when you have the same one for $1,500.
What do you do?
Tell them to bugger off because you can’t match their price because you would not be making even one dollar profit if you matched their offer?
If you didn’t know your Lifetime Value . . . you probably would.
However . . . you are smart . . . you know your L.V.O.Y.C. You now have several options.
1. Match their price.
2. Reduce your price by a few hundred dollars and then throw in something else which has a higher perceived value to your customer, even though it’s only costing you . . . your C.O.G.S.
3. Match their price and still throw in something of a higher perceived value like a few replacement ink cartridges for the printer etc.
You should be getting my drift by now.
If you are thinking this doesn’t apply to Internet Marketing or to your business . . . “Denial ain’t just a river in Egypt” and you are bloody wrong and in serious trouble . . . I suggest you start finding a back-end product or service urgently!
It NEVER ceases to amaze me how business owners and internet marketers spend more time planning their next Christmas party or gossiping about who’s ‘screwing’ who over the bosses desk . . . rather than taking the time to work out the Lifetime Value Of Their Customers. When I do question them about it – I usually get a laundry list of excuses as to why it won’t work for them or why their business is so unique. What a load of Bullshit!
PROCRASTINATION = POVERTY!
Instead they prefer to spend money trying to get new customers instead of mining the pot of gold which lies within their own database . . . if they have bothered getting of their ass and keeping a database at all!
I want to give you a few real life snapshots from customers I have mentored in Lifetime Value and then combined various direct response marketing strategies and sizzling sales copy . . . because I want to you to appreciate how powerful it can be to your business.
A customer, who after spending $14,000 a year on their Yellow Pages advert, broke even which meant he got his customers for nothing . . . which isn’t bad. They also spent $360 per fortnight on an advert for 14 months at a cost of approx. $10,800 . . . producing ZERO customers.
Enter the Toe Cracker . . .
I proceeded to work out their Lifetime Value. I then wrote a 2 page letter which was sent to their customers, offering them a gift certificate for $50 to spend in their store, with no other purchase necessary . . . which meant they could walk in, find something for $50 hand over the gift certificate for $50 and walk out.
No questions asked.
Sounds crazy doesn’t it!
It’s brass balls marketing at its best. Most business owners and entrepreneurs live by a scarcity mentality and they won’t try this proven marketing strategy – one which I have successfully applied many, many times.
They sent out 1776 letters which meant they had a maximum risk exposure of $88,800 plus the $900 in postage and another $200 for printing etc. – ONLY if every person brought in the letter and $50 gift certificate, grabbed the free gift and walked out). Now in a prison . . . sure you’d get ripped off. But in real life, 99% of people are honest, otherwise the criminals would be outside roaming free and the honest people would be the ones behind bars.
That’s a total of $89,900 Gross on the line and my customers, who were in their 60’s . . . thought I was insane and in need of a straight jacket.
I said to them they need to remember the $88,800 is the gross potential sales. There hard costs were approx. 50% of this amount. Still, $44,400 aged them 20 years and scared the crap out of them.
They sat on my letter for 3 weeks before they discovered exactly why I am called Trevor ‘Toe Cracker’ Crook.
Nervously the letters went out.
167 existing customers went in to their store, used the $50 gift certificate and they generated over $43,000 in gross profit. NOT ONE person scammed them for the $50 free gift and left the store without spending more money.
From a direct mail response, this was a 9.40% response to letter one.
Each letter mailed was worth $24.21 and each customer was worth $257.48 gross.
Letter 2 made even more money for them.
Another customer, who has applied my copywriting and direct response marketing strategies better than anyone else.
Sure, they have paid me to tweak their copy and I have mentored them to. The cold hard truth is, if their product or service sucked harder than a hooker on the strip in Vegas . . . their lifetime value would be very low.
This particular customer, had a database of approx. 8,500 people and they use a powerful combination of off-line and on-line marketing strategies.
When they were ready to offer a new product, they went to their ‘A’ list of 2,500 people first and sent their sales letter, which I had tweaked for them.
The last time I checked, they had over 500 sales at USD $197 each which meant they generated gross sales of USD $98,500 and letter 3 in their 3 step letter sequence . . . hadn’t expired at that time.
Do the math.
A 20% conversion just to their ‘A’ list. The exact figure will be higher . . . however . . . the power of back-end sales and working out the lifetime value is awesome.
They also know the rest of their database, using a 3 step letter sequence generally pulls a 10% conversion. It’s some serious cash my friends!
The mail out most likely cost a total $2 a piece per customer over the 3 letters.
What if you could send 3 letters to 2,500 of your customers at a cost of $5,000 (plus printing costs etc.) and generate $98,500 in gross sales?
My very first writing project . . . was to do with wealth creation for a man who is also featured in self help movie . . . ‘THE SECRET’.
My customer knew they converted 30.8% of attendees to their entry level $3,495 home study course.
From there, 12% paid another $6,000 for another course/workshop and so on.
They had been charging $99 for people to attend their introductory night where they did give genuine value. After more probing than a Doctor doing a prostate examination . . . I found out they really wanted to charge $165.
I said sure, I can get you $165.
The first time the letter was used to their database, according to the business owner, they had 373 people attend 2 consecutive introductory nights which means:
373 People x $165 = $ 61,545
373 People x 30.8% (114) x $3,495 = $398,430
114 People x 12% (13) x $6,000 = $ 78,000
TOTAL Gross Sales: $537,975
All from using kick ass sales copy, mailing letters to an existing database and understanding as well as knowing . . . the lifetime value. What you don’t know is this customer has 5 different levels and he knows the numbers/conversions to each one giving him an exact Lifetime Value of Each Customer – and total control. I have only used 2 levels here.
As for the numerous strategies YOU can use to actually market to your database to generate more sales . . . there are too many to list here.
Don’t choose to be like one prospects of mine a few years back who chose H.U.A. Disease (Head Up Ass) instead.This women, a nail and beauty therapist came to see me after one of my existing customers asked me to help her.
She had moved from another state and her business was floundering like a fish out of water!
She had tried the usual institutional marketing crap which failed. She tried a 10% discount on a set of nails which also flopped.
I sat with her for a couple of hours and worked out the Lifetime Value of her Customers.
Surprisingly, it was just over $2,000 per customer over a 3 year period, based on the business she had before.
I gave her more strategies than you could poke a stick at to get new customers on board . . . knowing each new customer would be worth just over $2,000 to her.
Sadly . . . she chose ignorance and procrastination and is no longer in business!I don’t want YOU to be liker her.
Start working out the Lifetime value of YOUR Customers right now and then mine the pure gold nuggets which exist within your database.
Dedicated to Kicking Your Ass Until You Succeed!
Trevor ‘Toe Cracker’ Crook
PS. If you have an off-line or online business which offers one product only with no back end sales . . . and you don’t have a a strategy to gather names/email addresses (online) or a strategy to gather names, address and all contact details in your off-line business to build your database . . . you are even more prone to failure and you are leaving too much money on the table and at the same time – making you a sitting duck and declaring open season for your competitor’s to steal your customers away from you.