When it comes to marketing your business, I’m willing to bet you’re like 95% of marketers (even many relatively sophisticated ones) in focusing on the WRONG thing…
You can have all sorts of goals for your marketing.
But by and large, MOST marketers are focused on one goal above all. And even though this goal is an important one, focusing on it first makes achieving it harder AND it stunts the growth of the business.
We’ll get to what you should focus on instead in a moment. But first…
The fallacy of chasing new customers…
This is, by far, the biggest goal of most business owners and marketers.
New customers, new customers, new customers.
And when you’re starting out, it’s all-important. Because until you get your first few customers, you don’t really have a business. You have a dream.
The problem isn’t in getting those first few customers. The problem comes when you don’t quickly relegate the goal of getting new customers to a secondary status.
Too many businesses, long past the stage of needing to get their first few customers, still spend far too much time focused on, thinking about, and dedicating valuable resources to this…
When their focus, thoughts, and resources could be leveraged to much greater result.
Here’s the goal and focus that’s far more important than getting new customers…
Once you have your first few customers in the door, your goal in marketing — as well as service and innovation — needs to be on the customers you already have.
You need to be looking at how you can maximize the value you provide to each individual customer…
As well as the revenue you get from them!
The official term for this is Customer Lifetime Value…
In very basic terms, the customer lifetime value is the measured revenue (or profits) you can expect from each customer over a set lifetime.
Now of course, this changes through time. A business that’s only two years old can only measure customer value over two years. Or maybe just the last year.
A business that’s 100 years old should maybe only look at all customers acquired in the last 10 years, to get an idea of where they’re at today.
The really simple way to calculate this is to…
Figure out the total number of customers you’ve had within whatever time window you’re going to look at…
Then take the total revenue (or profits) over that same time window…
And divide the revenue (or profits) by the number of customers…
And whatever number you come up with is your per-customer value.
If you want to get much more analytical and precise about this, there’s a ton you can do…
For example, you can figure out how long the average customer lifetime is, by figuring out the time between the last purchase and the first one.
You can also compare this on a per-campaign or per-product basis. This allows you to figure out if a particular marketing campaign generates higher value customers… Or if a particular first product generates customers that don’t buy again.
You can figure out the distribution of revenue in your customer file, too. For example, you’ll probably find that 80% of your profits come from 20% of your customers. And 80% of the 80% comes from 20% of the 20% — meaning that the top 4% of your customers are driving over half your profits. (This is covered in the must-read 80/20 Sales and Marketing book from Perry Marshall — currently $18.39 new on Amazon, available for a penny plus shipping through a special deal for Breakthrough Marketing Secrets readers.)
Maybe you can also look at what a new customer is worth over the first 30, 60, 90, 180, 365 days…
Getting curious about how much each new customer is worth — and finding trends within this data — is both intellectually AND economically stimulating!
Once you know how to calculate lifetime value, here’s how to use it…
Your primary focus and objective of your marketing and other business decision making needs to be increasing customer lifetime value.
You’ve heard the stat… It costs 6X to 10X as much to get a new customer as to sell to an old one… That means if it currently costs you $100 to get a new customer, you could make an equivalent sale to a past customer for as little as $10 — maybe a whole lot less!
Further, previous customers already know, like, and trust you. As long as they had a good experience the first time, they’re predisposed to come back to you, if you give them the opportunity. Not only that, they’re more likely to buy more expensive, more profitable products. Past customers provide a disproportionate share of the profits (sometimes 100%) in businesses that really understand the power of lifetime value.
Not only that, focusing on increasing lifetime value does something far more interesting.
I mentioned above that focusing on getting new customers was potentially making that task harder. Here’s why.
If your primary focus is on increasing the lifetime value of a customer, your business has completely different economics.
If your focus is solely on getting new customers, you only look at first transaction value. Let’s say the first transaction of every customer is worth $50 to your business. With that being your only focus, you can only afford to spend $50 — probably less — to get a new customer.
Now if you focus on lifetime value and know that on average that same customer will be worth $500 to you over their customer lifetime, you will be far less hesitant to spend the $50 to get $500 in return. Maybe you’d even be willing to spend $100 or more to acquire the new customer. If you’re able to outspend your less-sophisticated competitors 2-to-1 to acquire new customers, what do you think that does to your ability to take market share? THIS IS HUGE. In the long run, he or she who is able to spend the most money to acquire a new customer wins. Period.
Knowing then building the lifetime value of your customer completely changes the economics of your business.
Not only does it make it more profitable, it makes it easier for you to bring new customers in through the door.
With that said, here’s a quick list of some of my top strategies for increasing customer lifetime value…
— You can offer more products or services. If you don’t have anything else to buy, a customer won’t buy from you again.
— You can simply make more offers. Sometimes, the timing wasn’t right to buy before, but it would be right now if you only made the offer.
— Create opportunities for your best customers to spend more. Package together complimentary individual products to make it easier to buy more. Offer higher tiers of service. Offer higher tiers to the higher tiers.
— Create a deliberate and sophisticated system for upselling and cross-selling. The best way to make sure this happens is to make it a system. When someone comes into your business, it should be made clear to them that there is a ladder they can climb when they are ready. That there are additional products to fulfill their additional needs.
— Create opportunities for recurring revenue. This is perhaps the biggest booster of lifetime value and profits that there is. When a customer agrees to recurring purchases of a product or service (until they say stop), you only have to make the sale once, but the profits keep rolling in. Yes, you have to continue to deliver value (making it worth the recurring charge to the customer) but you don’t have to work hard to keep selling them.
There’s a ton more strategies that you can use. This is just a starter list.
The idea is that within every group of new customers that come through your front door, there are A customers, B customers, C customers, and so on…
Think of the grading on an academic scale…
A customers will spend almost as much as you ask, as long as the value is there. They’re more than happy to sign up for subscriptions and recurring billing options, if you make a compelling offer.
B customers will spend a lot more than the average customer, but may not take you up on the top-top-shelf offers.
C customers are average, but are especially valuable because they provide “keep the lights on” revenue.
D and below customers are a lot less desirable, but may be worth serving in some limited capacity.
For example, I think of D customers as those who will almost always shop sales. The profit there is minimized, but you can move product easily by appealing to their desire for a bargain.
F customers are those who spend little and complain a lot, creating little revenue, no profits, and big headaches and resource drains on your business. They should be ditched if possible.
This is all apparent when you start looking at customer lifetime value. And not just lifetime value across your customer file, but the data within the data.
And it’s an absolute breakthrough.
Yours for bigger breakthroughs,
Editor, Breakthrough Marketing Secrets