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

  • Dan

    A lot to think about there, Ian.

    While getting my eBook to convert well is high on my list, it’s clear to me that the future success of my site very much depends on some sort of membership service.

    I’d be lying though if I said a whole bunch of limiting beliefs aren’t kicking in. At this point I’m struggling to see what I could create to warrant someone spending $19 p/mo, when you can get a high quality motorcycle magazine for $9.

    However, I’m not going to let my limiting beliefs stop me, so I guess step one would be to brainstorm all the different types of content I could include, and I’m sure I would be able to find hundreds of experts all over the world to help with the content (theres a lot more to riding on track than the actual riding part i.e. tyres, suspension etc).

    I’m not sure if fleshing out my eBook is a viable option, because each section in the eBook (and the same content on my site) already addresses most of those things in great detail, but it’s definitely something I’ll look at.

    Also I think I’ve decided to stop spending time writing my product pages. I would have to create hundreds to reach any sort of decent earnings, not only that but the traffic isn’t going to help my main cause of getting people to sign up to my newsletter and membership service because they simply bring less targeted traffic.

    On another note, I wanted to ask you about my domain.

    When I first set the site up I was thinking only of the UK audience, but looking at the traffic as well as correspondence I’ve had, I’m getting it from all over the world.

    Do you think it would be worth investing in changing the domain to a .com, loosing the UK content (circuit guides – they get very little traffic) and maybe switching to a more global currency? In you’re experience, do you think the UK elements will make a difference?

    • DanNetting

      Well things haven’t been quite as exciting as when they first started out. The first week I got 7 sales, the second week 2, and last week 1. This week I am yet to see any sales, and even though I’m seeing my highest ever rate of subscribers in recent weeks, no ones taking me up on my 20% discount offer in the first mail.

      But it’s not going to stop me. I’ve just set up a basic Adwords campaign targeting my main keyword (and ones similar) to get some traffic to the sales page and hopefully get some sales, and with it some metrics.

      Once I have these metrics I shall then have something to take to the affiliates and say “this page converts at x%” etc.

      I’ve looked into it a lot and I’m going to give Clickbank a try (once I have my metrics). Even if I don’t have any super affiliates picking me up, I’m happy to swallow the setup fee for how easy the service makes things, and even though the fees per sale are higher than most, if it means I get extra sales then its sales I wouldn’t have had otherwise.

      In the meantime I will be researching and planning out a framework for a membership site and brainstorming the implementation of it.

      Oh and I’ve gone international too! My site is now a .com and prices are in dollars. This was a tough one to decide, but I’ve still got the .co.uk so in the absolute worst case scenario I can go back.

      • Hi Dan, how many views of your oto (one time offer) have you had? You may need to tweak the copy to make it an absolute no-brainer.

        Have you moved the entire website to the .com domain or redirecting the pages? I’m concerned about you losing the search engine rankings.

        • DanNetting

          Hi Ian. The email gets sent to every subscriber, of which I have had 65 since it went live, and it has an 80% open rate. It’s tricky to track follow up message CTR in Aweber reports, but I think 16 people have clicked through from what I can see.

          At the moment I have it bundled in with the ‘thanks for subscribing’ email. I have a short paragraph with the thank you, then immediately under that is a large ‘here’s a bonus’ heading, which then goes on to tell them that as a thank you for subscribing they get 20% off the eBook.

          Re the site, I have done it completely by the book. I’ve kept the .co.uk in place and have 301 redirects pushing through to the exact same link structure, and I’ve also used Webmaster Tools to declare that the site has moved. I’m hopeful for minimal effects in that regard.

          • Dan, you are making a classic rookie mistake of giving them the free report and then immediately offering them a 20% discount on more information that they need to pay for. Put yourself in your avatar’s shoes… Would you ever buy into that deal?

            That’s a big brave move with using 301 redirects. I hope it works out for you. I would have suggested leaving the blog as co.uk and just had the sales page on a .com domain so you can sell globally. As the blog is written in UK english and already ranking there was no need to move it… But, to sell the product globally the sales page would do better as the home page of a .com domain. Affiliates will then create their own blogs and sell your product as an affiliate via Clickbank, or where ever you decide.

            However, I am no SEO expert, so if you have been advised by an SEO expert, then it should all be okay…

            • DanNetting

              Do you think it would be better to put the offer to them later in the autoresponder sequence then? To give them time to realise what quality I have to offer?

              Looks like I got the wrong end of the stick regarding moving to a .com. However I did do a lot of reading and thinking about the move, and I think moving will benefit me more in the long run.

              • Dan, opt in at the link below and model the funnel…
                http://modeltrainsforbeginners.com/newsletter/

                • DanNetting

                  Wow, that’s quite an upsell! I have something clear to aim for there.

                  Thanks Ian.

                  • Dan, don’t reinvent the wheel… Model stuff that is proven to work.

                • DanNetting

                  Ian, what was the opt-in rate of the MTFB newsletter when you was in charge? Bearing in mind it had no freebie included. And in your opinion, how much do you think a free report affects newsletter opt-in rates?

                  As you say the free report is going to be affecting the conversion rate of my product, so I’m thinking maybe I could bring it into the product as a bonus and market it as a sort of ‘quick reference guide to riding best practises’.

                  My concern though is that my newsletter opt-in rate would plummet as a result of losing the free report as an incentive.

                  Thanks a lot.

                  • Dan, you shouldn’t be concerned about optin rates, but focused on visitor value. You could have an 80% optin rate but only make $1/visitor from that optin page.

                    I would prefer to have a 20% optin rate and make $10/visitor.

                    Every niche is different so you have to test all the different funnels and work out where your best visitor value comes from.

                    Relevancy is the critical factor. If your sales funnel is a Google search ranking to landing page to optin page to OTO… Then you have to ensure relevancy the whole way through the funnel.

                    The biggest example of this, is if you send Google searches (from the US) to a landing page written in UK english (tyre vs tire)… This leads to a massive disconnect.

                    However, to answer your question… You’ll never know till you try! Test the free report to OTO and work out your visitor value over 1,000 visitors. then test the newsletter over the next 1,000 visitors and check the visitor value. Or, run an A/B split test… Whichever produces the best visitor value is where you need to focus on to further improve the conversions.

                    As you advance you will eventually have funnels that take each person through various different combinations… But, this is another long detailed story for another day.

                    Another BIG tip is to always test every one of your emails using a Yahoo test account… You’ll see why when you try it. Remember that some people are viewing your emails on old slow computers, smartphones and tablets. So, when you start inserting images, and forcing people to enable images to view them, it adds complexity, frustration and a not so good impression.

                    Keep it simple…

                  • DanNetting

                    You’re right, I just need to try these things. The questions are born out of the fear of getting it wrong, but in reality what’s the worst that can happen? All that’ll happen is I’ll get a less than ideal result, and I’ll know how not to do it next time.

                    I can see what you mean about the different funnels on the MTFB upsell. It’s obvious that the site owner wants people to join the members area, but has given them a clear way to opt out of it but still continue with the original sale, ultimately keeping them in a funnel, rather than having them leave altogether.

                    Thanks Ian. Much appreciated, as always.

  • Ian McConnell

    Dan, you have completed the “minimum viable product” stage and proved that you can make money from it.

    The next step is to leverage that success and create a $100k, $200k/yr profit and a sellable asset. You may never sell, but by building your business as if you will one day, it will help you make better decisions…

    So, over time you need to:

    -> Maximise your sales funnel conversion (an ongoing task that will never end).
    -> Make all your products available worldwide.
    -> Make more money from each customer with premium products, subscriptions, affiliate products, etc. (increase lifetime customer value).

    Which one you do first is up to you… However I will tell you that from my model train experience online, I was selling memberships at $27/mo when the same people could buy glossy mags for $7. I sold over 4,000 (before I sold the website) and some members had been subscribed for 23 months…

    I also learned to get out the way of my business. My fears held me back for many years and I have written before about how I estimate my fears cost me over $250,000 in one year. That’s a quarter of a million my family didn’t have, just because of my fears…

    If 4,000 customers in the world are prepared to pay $27/mo to access information that is freely available on the web, who am I to question them? I provided a service where I took the information and arranged it in a way, that instead of them spending 10 hours or more online viewing conflicting information, they could access the information in a nicely laid out fashion… essentially they were paying me to find the information and organise it.

    I offered a 100% unconditional 60 day money back guarantee and had a less than 3% refund rate. People had the choice to get their money back, if they didn’t like what they got. So, I felt completely at ease knowing people were getting value for their money.

    I could have come up with a hundred reasons not to go ahead with the idea, and why it wouldn’t work. But, until you test an idea you should NEVER discount it. Most of my subscribers also paid the monthly subscription for the glossy mags. They were passionate about model trains and wanted ALL the information available.

    Our job is not to question why people pay for stuff, it is to put the service out there and let the people decide… You may think people are buying for one reason but people are actually buying for a completely different reason. I had some people email me saying they had been model railroading for over 20 years. They had no need for my information, but they paid the $27/mo to support me. They loved how I was helping the hobby and wanted to contribute… I would have never thought this would happen, but it did!

    And if you want some clarity on how a real life example works go to “Model Trains For Beginners” and buy the product for $27. As you go through each stage you will see how it works. You will access the product and get a first hand look at the membership content. Make sure you cancel the membership in the first 30 days so you don’t get charged for the next month… But, for $27 it is a brilliant real life case study.

    Have Fun
    Ian

    P.S. Dan, if you want the absolute truth, I don’t believe I would have ever got over my fear without my coach. I had created so many reasons not to proceed… I was scared to create something that people hated and receiving hate emails. I was scared of annoying expert model railroaders that freely gave away their advice when asked. I was scared of not knowing the technical aspects of a membership site. I questioned why a person would pay $27/mo to me when there was so much free info out there. The list went on and on.. But, as my coach explained I would come up with a list of fears for every market I considered online. The trick is to find someone to help you get over the fear and keep moving forward…

  • Dan

    Invaluable stuff here Ian. Both for me and anyone else in a similar situation. It’s great to know that someone as successful as you went through all the same thoughts, fears and feelings, and you made it through to the other side.

    It’s clear that my own money saving and DIY brain is causing many of these limiting beliefs, but I guess not everyone is like me. As you say, I’ll never know everyone’s intentions when buying.

    I’ve actually had a pretty good idea to help entice people in, and that’s the next product I had planned to create. Originally I was going to sell it as another stand alone product, but I think instead I could use it as a ‘free bonus’ to get people to sign up, which I think would work well.

    I’ll most definitely check out your model train membership. That’ll be a great investment into how these things work. Thanks for the tip!

    Could I just ask for clarification on this point:

    -> Make all your products available worldwide.

    Is it as simple as it sounds? Or do you mean doing specific things to tailor it to a worldwide audience?

    Thanks again Ian!

  • Ian McConnell

    Dan, just to clarify… Model Trains For Beginners is NOT owned by me. I created the business and sold it back in 2012.

    Because of this, there are things on the website that the new owner has changed, that I don’t necessarily agree with. However, the sales funnel is mostly the same and it gives you a very good idea of a working and converting funnel, with a product that generates an average sale of $117 and a very low refund rate.

    It is a very well optimised (KISS) cash producing business… 1 traffic source (affiliates), 1 sales funnel and 1 product (membership).

    Model Trains for Beginners is sold worldwide. It is priced in US$ which is the internet standard currency, it has a .com domain and all the information is generic rather than country specific.

    Cheers
    Ian

  • Dan

    Sorry Ian, I did actually know that but my mind forgot for a brief moment.

    Didn’t realise the traffic was soley from affiliates though. That is very interesting indeed.

    Thanks for the clarification. I think my initial gut feeling was correct that I need to make my site more worldwide friendly. I’ll look into implementing this.

    All the best

  • DanNetting

    Hi Ian,

    Over the last couple of days I’ve been snooping around the MTFB membership site, and I’ve gotta say it is really filling me with confidence, and having seen what I need to create in order to make it a useful membership site that people would be happy to pay for, I feel this is something I can easily achieve. However I did just have one question…

    There is obviously a large chunk of information available right from the start, but I just wondered what it was you was ‘unlocking’ every month for members to see. As you said in your ‘Membership Site How To’ post you only need one month’s content in advance, so I’m just trying to get my head around what I need to be doing so I can set a plan in place.

    Thanks a lot

    Dan

    • Hi Dan,

      I didn’t see your purchase in my Clickbank affiliate analytics so I wrongly assumed you didn’t buy it… Are you talking about the Insiders Club at http://modeltrainsforbeginners.com/members/

      If you are, then the day your subscription renews you should get an email with new stuff that adds to the existing content. That’s if the new owner hasn’t changed anything…

      The big chunk of information upfront is the thud factor that marketers talk about. It took about 12 months to build up to that level. When I opened the membership it was just the ebook broken down into more detail. As I got feedback from members I built up the content to meet their needs and delivered this as the monthly updates. Members love getting what they asked for and because they feel invested, they stay subscribed…

      Have Fun,
      Ian

      • DanNetting

        Hi Ian,

        I most definitely did purchase and yes it was the Insiders Club. I’ve been through and documented everything that’s available upfront, but I think I’ll let it run for another month just so I can see what is being offered on a monthly basis to give me an idea. In the mean time though I can be cracking on with the upfront info.

        When you say thud factor, I take it you mean that members see it and think “wow, there’s so much info!” right?

        I’m pretty dead set on the implementation. I’ll be using WishList Member (I’ll use your link) running on a subdomain of the main site, all I need to do is plan out the initial content and then get to work!

        I won’t put a solid deadline down yet until I know exactly what I need to do, but I think this is something that realistically I could have done by the end of the year if not before, maybe even having a few paying customers already 🙂

        Sorry I did have one more question. How did you approach using other people’s YouTube videos in your paid service? It seems to be a grey area.

        All the best

        Dan

        • Hi Dan,

          Yes, you are spot on with the thud factor. it came from the “old” days when you got a big box in the mail and there was a big thud as you put the box on your desk.

          I’m not a lawyer so you should get your own legal advice… But, from my point of view (as an average man on the street), I think if you sent me an email asking if you could use my YouTube video inside your membership site, I would be stupid to say no.

          First up, I would wonder why you asked when the reason I uploaded it to YouTube was for thousands of people to grab the embed code and put it all over the internet, so I could get tens of thousands of views. That way these people are giving me free traffic.

          If you put my video inside a paid membership site then my video will have even more credibility. You will have taken the time (because you are being paid for it) to cherry pick all the best videos and your members will see me as an expert.

          I would put the videos in the membership area, then contact the channel owner, tell them you have done it and give them free access. They will love you for it and it will be a great way to introduce yourself and possibly do some joint ventures… and I guarantee that some of them will want to make more videos for you…

          Have Fun,
          Ian

          • DanNetting

            Thanks Ian.

            I never thought of it like that, but it seems very logical that they should be happy with you using the videos, what with so much to be gained on their side.

            And if they become affiliates of my membership site, they’ll effectively make money from their vids too, increasing the chances of them wanting to produce more content for me.

            I know there is an absolute tonne of content on YouTube for my niche, so I feel this is something I should be able to leverage very well.

            Cheers 🙂