How To Calculate Customer Lifetime Value
In this video, I’m going to walk you through how to calculate your customer lifetime value. Sexy, right?
Many customers will buy more than one offer from you, so it’s important to understand how much you can pay to acquire a customer. To do that, you need to know how much on average a client is worth to you, not just on that initial purchase, but over the lifetime of your relationship with them.
Step number one is to take your total revenues. It’s most helpful if you do this over at least 12 months of revenue, if not more. We like to go back all the way to the beginning of a particular product or a particular lead source. We’ll could be going back sometimes three, four, five years and totalling up our total revenues over that period.
Step number two is to tally the total number of customers who paid you over that same period of time. This is not the number of transactions that you have. A lot of people make that mistake. It’s not the number of transactions that you have, but the number of unique customers that you had over the same period of time that you calculated that revenue.
Step number three is to divide your total revenue that you calculated in step one by your number of customers that you got in step two to get your client’s lifetime value. Fairly simple, right?
Let’s talk about some applications of this number and where you’re going to use it when you’re analyzing your business. Calculating your breakeven rates would be one place where you need to know your average lifetime value of a customer, like we did in our video on how to make an Instagram ad, which I’ll link down below.
You might also use this when you’re projecting revenues for cashflow or for setting benchmarks and seeing how often you can improve your customer lifetime value, or is it declining over time?
You can also calculate over different acquisition channels to find out which acquisition channels are the most profitable for you and your business.
Let’s talk about how to impact and grow your customer lifetime value. There are a few things that really come into play when it comes to improving that number.
The first thing that you could do is to improve your average transactions by selling more or raising your rates.
The other thing that you could do is you can improve the frequency of purchase by reaching out to your current customers more often and making more offers to them.
The third way to impact your customer lifetime value is to improve how long somebody stays a customer, decreasing your turn and really taking a look at extending the life of those relationships.
If you need help with closing higher value sales or by making more offers to the clients that you do have, we teach our students in Client Hatching Formula just that. For more info on that program, click the link in the description below to message me, and I’ll shoot over the details for you.
If you found this video helpful, please give it a thumbs up and be sure to subscribe to our channel. Also, let us know with a comment down below how you will be improving your customer lifetime value inside of your business. I will see you next time for another episode.
Bye for now.