Why Is The Lifetime Value Of Your Customer So Incredibly Important?

The lifetime value of a customer is an often overlooked metric in most businesses, especially in the online marketing world. This is a mistake, because I believe it's the most important metric in any business. It's the metric that will help you make the right decisions and create more profit while working less…

My background was mostly with brick and mortar businesses before I came online. But, I based many of my niche selection and online business decisions on achieving a higher lifetime value of a customer.

It made no sense to me, to chose a niche I was passionate about, but could only ever achieve a lifetime customer value of less than $30. That would mean having to sell to tens of thousands of people to create a reasonable income. It's probably the quickest way to destroy my passion with the frustration of trying to make money from the niche, when there was really not much money to be had in the first place.

The alternative is to go into a niche I was less passionate about and could achieve a lifetime customer value of over $2,000.00. It required selling to less people, which mean't less work for more profit…

What is Lifetime Customer Value?

Customer Lifetime Value Calculator

Customer Lifetime Value Calculator

Let me explain lifetime customer value with an example…

Kim mows our lawns. He charges $40 for each mow and usually mows every fortnight. Kim has been mowing our lawns for over 5 years.

What is Kim's average customer lifetime value…

$40/mow x 25 mows/year x 7 years (average stay in one house) = $7,000

If Kim's average lifetime value of a customer is $7,000, he could spend a few thousand dollars to get one customer, and still be profitable.

It also makes his business more valuable and sellable, because the future income is almost guaranteed…

Another Example

When I initially sold my model train ebook (on it's own), my average customer lifetime value was $27. I added the membership component and it went from $27 to over $110.00 almost overnight.

My offer on Clickbank became popular with affiliates, because instead of spending $0.15/click to make a $27 sale, they could spend up to $1.17/click to gain better quality traffic and make an average sale of $117 or more.

They could pay more for traffic and beat the competition!

Mowing lawns or selling an ebook, the secret to doubling or quadrupling profits quickly, is to focus on and improve your average lifetime customer value.

Easier To Sell

You probably already know that it is about 7 times easier to sell to an existing customer (because they like and trust you) than it is to sell to a complete stranger to your business.

So, doesn't it make sense to try and maximise the average customer value?

[box]Memberships and Subscriptions are where the BIG profits are in your business. They provide a consistent and reliable income, as well as make your business more valuable and sellable.[/box]

Now I can hear you asking. How could I create an ongoing subscription program from my product?

How To Create A Subscription

Let's take Dan's product (The Ultimate Track day Guide) as an example…

Dan sells this ebook for $19. Dan's sales funnel is basically traffic to optin to autoresponder messages to sales page to order page.

Each one of those “touch points” can be measured and improved. The traffic source can be improved, the optin funnel can be improved, the autroresponder emails can be improved and the sales page conversion can be improved.

All of these “touch point” improvements WILL result in an improvement to the bottom line (net profit). But the truth is that there is no end to these improvements. Dan may get to the point where he believes the conversions are acceptable. But, until he gets 100% conversion at every level, he should NEVER stop testing and tweaking.

[box]Note: 100% conversions at each level is almost impossible, but don't be mislead by what other so called experts tell you. If you have targeted traffic and have identified your avatar (more on this later) then there is no reason to accept anything lower than a 50% optin rate and a 30% sales page conversion rate.

Think about when you opted into a squeeze page… More than likely it's because the message spoke directly to you. It pre-qualified you and it offered a bribe that you thought was worth giving away your email for.

Now, if ALL the traffic going to that squeeze page was just like you, they could expect a 70% conversion rate, or more!

The same applies to something you have bought online. Think about the previous research you did online before buying? Why did you buy from that website? Was it the design that made you feel like you trusted the website? Was it the message that spoke directly to you and your situation? Was it the credibility, the rapport with the seller, or something else?

Carefully think about your answers and make sure your website ticks all the boxes. That's how you get awesome conversion rates…[/box]

The Biggest Profit

But, the biggest profits will come from Dan increasing his lifetime customer value. Instead of each customer paying $19, Dan needs to get them paying $19/month (or more) and staying subscribed for up to 24 months.

How does Dan do that?

From Dan's sales copy, I can see that Dan's ebook consists of at least 10 segments. Here's how Dan sells them…

  • Address your concerns about track days and riding on a circuit
  • Show you just what to expect on any given track day, and how to prepare
  • Show you how to stay out of trouble and enjoy your day
  • Help you decide how to continue taking part in track days (hire bikes, track bikes etc)
  • Show you how to progress through the track days groups
  • Teach you the riding techniques to become a fast, consistent and safe rider
  • Teach you riding techniques for every stage of a corner
  • Show you the secret weapon to true speed
  • Help prevent crashes, and show you how to mentally deal with one should it occur
  • Help you find an ideal first track bike

Every one of those segments probably has about 10 pages dedicated to it. Now, if the beginner rider had to hire a coach do you think they would cover everything in one sitting. No, of course they wouldn't!

They would focus on one aspect, refine it and when the rider had got to a satisfactory level, move onto the next aspect of track day riding. Each aspect could take 3 or 4 lessons with a whole lot of practice in between.

A serious rider may be coached for many months or years. And, not only will they be coached, they will be doing their own research to further improve their skills.

When people are passionate and committed, they want all the information they can get their hands on. They want people they can ask questions. They want to talk to like-minded people of various skill levels. They want to see the best YouTube videos available on the subject, read the best articles on the subject, listen to the best podcasts on the subject, etc.

Dan can provide a solution to all their requirements with a membership site. The easiest and quickest way to start Dan's membership site is to take all the chapter headings of his ebook and just flesh them out.

I won't go into great detail because I have covered setting up membership sites and creating content for membership sites in great detail on other posts.

But, what I will do is cover the creation of your avatar. Because, if you are crystal clear on who you are selling to and know EXACTLY what their needs are, you can fulfill every one of them…

What is an Avatar?

An avatar in the internet marketing world is an imaginary A-grade customer that you create. They are the exact customer you want and all your sales messages will talk directly to them.

[box]For example… my avatar for my model train product was John.

john-model-trainsJohn was 65yrs old, lived in Seattle and had 3 grandchildren.

John was retired and had lots of time and disposable income.

John thought it would be a great idea to build a model railroad with his grandkids. They could do it together in his shed and it would be something they could build and operate for many years to come.

John liked the idea that it would get the grandkids off the playstation and teach them some planning, building, electrical and modelling skills.

John had never built a model railroad before, but was fairly handy and willing to give it a go. He was a bit confused with the different scales and DCC, so he just needed some basic how to information to get started…

…And that's where my product “Model Trains For Beginners” fills the need.[/box]

Having an avatar makes it soooo much easier to create great converting marketing messages!

Every time I created an optin page, a sales page, an email or any marketing message, I always created it for John.

I made sure that every time I spoke, I was speaking directly to John's needs. I never wrote as if I was addressing a group of people. I always wrote as if I was personally talking to John who was a friend, that I wanted to help.

Try it! Create an avatar for your business, and then go over all your marketing messages. Are the messages talking directly to your avatar?

Questions, Comments, Feedback?

Got a question, want to make a comment or provide some feedback? You can do that in the comments area below or by contacting me here

About the Author Ian McConnell

Ian is a successful offline and online entrepreneur with over 20 years of marketing and business experience. He is very passionate about living a life with time, income and location freedom. Find out more about Ian McConnell >>

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