How much is the average client worth to
your business? Not just per project or
even per year, but for the lifetime of your business. Calculating the lifetime value of a client is
an eye-opening exercise I recommend to every small business owner.
Repeat
business
Let’s take several examples. A client who eats a $15 lunch at your
restaurant every Monday is worth $780 for one year and $2,340 for three
years. It really adds up, doesn’t
it?
A personal services business, such as a
chiropractor, massage therapist, manicurist, or hair stylist has a similar
business model where hopefully they can attract repeat clients. A client who gets a $20 manicure once every
two weeks is worth $520 per year and $2,600 in five years, and that does not
include the tips. Grocery stores,
hardware stores, clothing stores, and office supply stores are just a few
industries with similar models.
Large
purchase with add-ons
Some businesses rely on a larger but
less frequent purchase than some of the industries listed above. This may include furniture stores, airlines,
and computer sales. Many of these larger
purchases can be increased by adding service contracts, delivery charges,
financing charges, and by selling more items.
Some businesses will benefit from
becoming aware of the lifetime value of their vendors, partners, and
employees. For example, contractors are
often reliant on their subcontractors to deliver great services so they can
complete the construction projects.
Landscaping firms make great partners with nurseries and bring them much
business. And employees who sell and
close large contracts can have a lifetime value to your business of millions in
some cases.
Referrals
One way all businesses can increase the
lifetime value of a customer is by counting the amount of referrals the
customer sends you. Let’s say Marni spent
$500 with you. She was so impressed with you that she sent three clients your
way. They each bought $1,000. Marni is now worth seven times what she
originally purchased from you:
$3,500. When each of these new
clients refer more people and buy more in subsequent years, Marni’s value to
your business gets bigger.
This might just have you treating your
clients like Marni with a lot more respect!
Multiple
service lines
The more products and services you
offer, the greater your opportunities for increasing the lifetime value of your
customers. Let’s say Katie buys a $500 product from you
in January. In May, she comes back and
wants the $2000 service you talked about in a newsletter you sent her. She’s so happy she refers two clients to you
that buy $1,000 apiece. What can start out as a $500 client has now morphed into a $4,500 client and can easily
mushroom into a five-figure client by the end of the year. I’m sure it’s happened to you over and
over again.
Take some time next week to create a
spreadsheet that shows you the lifetime value of your clients. I'll
think you'll be pleasantly surprised to see how valuable your current clients
really are. If you need help with the
calculations, let us know. We’re here to
help.
