Jacquelyn walks into your weight loss center, eager to purchase one of your packages she was recommended to by her friend Sarah. Sarah wouldn’t stop raving about it, so Jacquelyn finally decided to go ahead and reinvent her lifestyle as well.
This is great news for you. Thanks to one of your current and loyal patient Sarah, you have a new customer and you made a sale without having to lift a hand…Or did you? This is one of the most overlooked concepts about business and sales. The effort you put into one patient has the potential to carry on beyond that first transaction – whether it is through on-going purchases or referrals. You have given that patient value, and you’re letting her help you create more loyal patients. Jacquelyn is now a part of Sarah’s customer lifetime value or lifetime profit value (LPV). The lifetime value will give you an approximation of how much each customer is worth to you. Understanding this is a result and key component of your marketing strategy and customer acquisition costs.
So What is Customer Lifetime Value?
In the simplest terms, customer lifetime value is how much a customer is worth to you in the span of your business relationship together. This includes every purchase a customer has made from you, any other potential purchases to be made and other kinds of revenue that customer can bring to your business – such as referrals like Jacquelyn.
When thinking about lifetime profit value it would be good to ask yourself this question: how would you feel if all your loyal customers told you they we’re never returning to your business again? Perhaps it was a bad customer service experience or maybe they didn’t feel as valued at your business as opposed to another. You would still have one-time purchasers, but imagine if everyone else simply left. It would probably be very devastating. That means you lose their continual support but also their continual business. That is A LOT of profit you’re missing out on – you might as well close up shop and call it a day.
3 Reasons Why You Need To Know The Value of Each Patient
- Many don’t realize that the minority of loyal customers can make up a majority of their revenue. And the minority can be very profitable if it is handled with the right strategy.
- You can make your business more efficient by focusing on the patients who have greater value. Shift your focus and spend more time investing in patients who you are loyal and know will give you a greater ROI.
- Knowing the importance of a customer’s lifetime profit value will also help you determine how much you can spend on acquiring a new customer and keep an existing on.
How To Calculate Customer Lifetime Value
The value can never be determined precisely, but if you crunch enough numbers, you are most likely going to ballpark the result fairly close. Determining this number will help you understand who your loyal and profitable customers are, what area of your business you can spend more time and energy on and how much you can spend on keeping and acquiring a new customer.
This infographic by Kissmetrics Blog does a wonderful job at calculating the lifetime profit value of a Starbucks customer.
You can also use a simplified chart such as this one:
This chart was used to find the LPV of a restaurant customer. Understanding a chart like this and determining the numbers will give you a better understanding of how much each customer is really worth to you. Now put these numbers in comparison to how much you spend to acquire a new customer. If you can turn a new customer into a loyal one, would it be worth it? If you could turn two out of three new customers into loyal customers, would it be worth it? Play around with the numbers to estimate other factors. What if you created higher ticketed packages for loyal customers?
It’s easy to get bogged down by how much you’re willing to spend on obtaining a new customer. In many cases, what you think is too much might actually be less than what you could actually spend. You are making in investment in their business as much as they are with you.
To your surprise, the customers who have high lifetime values might make up less than half of your business. Taking all these factors into consideration may prompt you to change your marketing strategy. Should you narrow your customer base? Is obtaining a flood of new customers more important than building fewer but stronger and loyal business relationships?
Figuring out your average customer’s lifetime profit value is beneficial for any business – even if you’re just starting up and have a small consumer base. In the long run, organizing your numbers will help strengthen a better marketing strategy and business model. Use the numbers you already have to your advantage and kill the competition.
If you’re ready to take your practice to the next level, build authority, become a celebrity in your town, and build a 7figureclinic and beyond, then you need to get in touch with me. I’m currently taking on a few private clients right now. It’s been almost 12 months since I’ve open up space in my 7figureclinic growth system and it won’t be long until the few spots I have are filled up. Complete the application here to see if you qualify.