Life Time Value of a Client

If you are starting a business in Edmonton, Calgary, Red Deer or anywhere else in Alberta you must learn to understand the lifetime value of a client.  Knowing exactly what the lifetime value of a client brings for your business will allow you to spend more on your marketing.  If you spend $2500 on marketing and advertising and you get 10 clients that you make gross profit before your marketing of $2500 you might stop this process.  If one the other hand you know that you will see those same 10 clients twice a year for the next 5 years on average then you are doing pretty good.

To figure out what the lifetime value of your clients can be you need to understand just how often people need your services.  If you are a hairdresser then you know you will see most client seven or eight times per year.  If you are a contractor you might only see your clients once over 5 years.  All businesses have a rate of which their services are consumed.  A restaurant could see the same people every single day while a deck builder might never see some of their clients again.  (Not likely as everyone moves from time to time)

I have done work for a plumbing company that would see some of their clients four to five times per year and some other clients just once.

How consumable is your business?  Home builders and real estate agents see their clients less than other businesses, but if they did a good job the first time, and stayed in contact in some way I would say that those clients used those services again.  Might be 5 or 10 years later, but still used them again.  Of course in the process of staying in contact with your past clients so they use you again you will stay at the top of their mind for getting referrals as well.

Take the number of times per year you will see your client and multiply this by the average sale per visit by your client.  Then figure out the number of years you will see a client for.  Keep in mind that no matter how great your service is people move, and lives change.  You might cut someone’s hair eight times per year for 6 years then all of a sudden that person’s daughter turn 17 and takes hair styling in high school and she is pretty good at it, therefore you might not see that client again.

Using a hairdresser as an example if you see a client seven times per year and he or she spends $40 each time and most of your clients stay on average for 5 years then the lifetime value of that client is 40 x 7 x 5=$1400.  Now if you spent $1000 to get 20 new clients in a month and you made $800, you know that is ok and you could do that again the next month.  Even though you are losing $200 that first month, by the time you get to the third month you should be making a profit.  At least in this example.

Of course this does not explain in any way what you can do if you start asking for referrals, which is another article.

Starting a business in Alberta can be exciting and scary at the same time, use everything you can to make a profit as soon as you can.  This means working hard and working smart in those first few months to couple of years.

Good Luck,

Kelly Kramer helps people and businesses make a profit from online and offline marketing.  You can reach him at 780-264-0878 or email him at kelly1kramer@gmail.com

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