As I share in my internet marketing book, numbers matter. As business owners, and marketers, we need to know the numbers of our business. At the broadest level, we need to know about our profit and loss. At the more specific levels, we need to know our numbers in terms of reach, engagement, and conversion.
All of these are important numbers, but, sometimes, we can over-focus on tracking data, and lose sight of what the data actually means.
I see this, frequently, when clients want to go over their Google Analytics data for their website.
Now, Analytics is a robust program. It offers all kinds of detailed tracking, if you need that sort of thing. But, for many clients, they lose track of the big picture as they swim in the details.
That isn’t helpful to them, or to their business.
One of the metrics that is also important to track is that of LTV (CLV)- which is lifetime value of a customer (customer lifetime value). It can be referred to with either acronym. This number is the total dollar amount a typical client or customer will spend with you over the course of their work with you. It is a very important metric.
Well, for one thing, it tells you how much each client is worth to you. This enables you to decide if you are putting in the right amount of effort for the LTV of your client. If, for instance, your typical LTV is $200, you probably do not want to invest a lot of your personal time into working with this client over time. There will quickly come a point where the value of your focused personal attention will outweigh the investment the client has made or will make in your business. If, on the other hand, your LTV is $20,000, you might be just fine with giving this client more of your focused attention, knowing that s/he will be a more valuable asset to your business.
How do you calculate LTV? Roughly, it’s the value of an order multiplied by number of orders.
So, for instance, if you have a consulting client who pays $500 per month, and typically stays for 6 months, the LTV of that client is $500 x 6 months = $3000.
This $3000 also tells you how much you can spend to acquire a customer. If you invest in paid traffic, for instance, you could spend up to a certain amount to acquire the customer, knowing that you’ll make $3000 total from that customer. So let’s say you spend $500 to acquire the customer, you know that for every $500 you spend, you’ll make back $3000. Your net will be $2500 per client acquired.
The key to this is understanding that every customer has a lifespan with your company, and you, as the business owner, want to find the best balance of cost and return. So called “free” client acquisition methods (like SEO, blogging, podcasting, etc.) tend to be low in cost, but high in time. Paid client acquisition methods (like Facebook ads, Google Adwords, Twitter ads) tend to be higher in cost, but take less time.
The best of both worlds, of course, is, perhaps, using paid acquisition and then rolling some of your profits into “free” client acquisition methods – so you benefit from both.
When you are looking to optimize your business, always look to your lifetime customer value as a starting place for identifying return on investment in your marketing. This is one strong measure of the health of your business.