Sometimes when we’re marketing, we put too much focus on pursuing new clients. While that’s an important activity, it’s not the complete story. The lifetime value of your current customers is a critical number to consider when planning.
For instance, I will use our printing company as an example. We are spending money on this newsletter to stay in front of clients because we want them to remember us and continue ordering from us for years. Yes, it costs me about $2 for each copy of this newsletter for each month. We also send out notepads and calendars around Thanksgiving and usually at least one other promotional item during the year.
We spend in total about $50 per year in nurturing activities. I also spend on average about $300 to acquire a customer in the first place with various marketing campaigns. Lastly, I know that the average client stays with us 4.5 years. The total spending in nurturing in that time is $225 ($50 x 4.5). Add that to the $300 we spend to acquire the client initially, and we spend $525 per client.
But because I know that an average client is worth about $3,500 in gross profit over their lifetime, and the average lifetime is 4.5 years, the investment makes sense. Spend $525 to get $3,500 back. That’s a deal we’d all take.
Understanding the lifetime value of a customer allows you to accurately decide how much you’re willing to spend to acquire and nurture that client.