What is The Average Lifetime Value of a Customer
Posted on December , 2016 
You know, one of the biggest things that made a difference for me not making any money to making what I thought was a lot of money was understanding a few numbers.

The biggest one would be lifetime value of a customer, lifetime value of a member whatever you want to call it. Even if you don't actually know how to calculate that number, even if you don't have any idea, I guarantee you can guess the average lifetime value of a customer. Let's say the average lifetime value of one of your customers (between the people that never make a first payment and the people that have paid 127 payments) is harboring right between $1650 and $2250 so, let's just say $2000. 

So the lifetime value of one of your members is on average $2000. Now if you know every customer that comes in your door is worth $2000, how much are you willing to spend to buy a customer? Are you willing to spend a $100 to buy $2000? You should be. Obviously there are expense against that $2000, so let's just say it is $1000, we're going to cut it in half. Are you willing to spend a $100 to make a $1000? You would net $900, that's a pretty good return on investment, right? What if it's $200? Now you only net $800 for every $200 that you spend, is that still a good investment? Absolutely. 

Now to do that all you have to do is know your conversion percentages. You have to know how many trials it takes you to get one sign up. How many people that come in the door take your trial program and then sign up. Is it 25% of the trials that you complete go to enrollment? So if you have four trial does one sign up? I'm going to guess that's your number. Some people are awesome, they may be at 50% instead of 25%. Maybe you’re bad ass and you're at 75% or 80%, but I'm going to guess you're at 25%, four
trials, one signs up. You can figure out based on your marketing spend how much each of those trial actually cost you. You can say okay well I spend X number of dollars and I had four trials that means I spent $50 on every trial. You did four trials, one signs up,
that means it cost you $200 to buy a member, right? How many times do you want to do that? As many times as you can, it's very simple math. 

So you have your lifetime value and you have your CAC, (CAC is cost of acquisition or cost of acquiring a customer) you take those two numbers you compare them against each other and you have a ratio. You have lifetime value against the CAC, you're going to come up with a specific number. That number is going to tell you whether you are doing well or you're doing poorly. If you're doing well that means you need to spend more money. That means you need to find as many effective ways of marketing as possible to go faster. As you see things change then you throttle it down just a little bit, you monitor and adjust. If your retention starts going down a little bit, if your conversion percentage goes down a little bit, slow the process down a hair until you find right where you want. It's a
speedometer, that ratio is the speedometer that makes everything happen; it tells you if are you doing well or you're not doing well.

So LTV (lifetime value), CAC (cost of acquiring a customer), and then the ratio of those two numbers together, if you don't pay attention to anything else, those three numbers can help you drive your business.

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