Marketing Budget Calculator*
Lifetime Value of a Customer
Most entrepreneurs and small business owners really don't have a clue about how much to invest in their marketing. Yes, that's invest not "spend." When you invest you expect a return greater than your investment and that's how you should view your marketing.
And when it comes to deciding on that investment, most people just use an industry average (dumb). Some just pick a number out of the air that sounds "comfortable" (even dumber). Here's a smart way to do it.
First, figure out what a new customer is actually worth to your business. Only then can you really know how much you can invest to get that new customer.
Let's say a new customer is worth $1,000 in bottom-line profits to your business. Suppose I brought you a machine and every time you inserted $500 into the slot and pulled the lever, a new customer (worth $1,000) walked in to your business.
How many times would
you pull the lever?
Obviously, not all machines run at peak efficiency. Sometimes they need tune-ups or even overhauls. One machine may need a bigger investment to spit out each new customer, another may require less. Some machines even have settings that don't require an ongoing investment at all.
But until you know what each new customer is worth, you can't decide what kind of machine you need. So let's do that now.
First answer a few questions...
1. How much is your average sale?
2. How many times per year does the average customer buy?
3. How many years will the average customer continue to buy? (assuming you keep him or her happy)
4. How many people will the average customer tell about your business?
5. What percent of those referrals will become customers?
Most entrepreneurs and small business owners don't track this data specifically, but this is only for a "bird's eye view" of your business, so don't worry if you don't have exact numbers. Just look at the data you have and estimate.
Remember, these are averages.
Some customers buy from you only once while others buy even more often than the average. Use your best guess.
About the following Charts
I originally created these charts for an old dry cleaner client. Since it was many years ago I doubt the numbers are very realistic today. They're likely much higher.
Use the charts to understand the concept. Then plug the numbers for your business into the formula. I'm sure you'll be amazed at the result.
But wait, this is
only part of the story...
When you take into account fixed and variable expenses, this probably boils down to around $1,000 in real profit. Of course, if all your fixed overhead is already covered, each additional customer is worth even more.
Of course, like so many other things in life, there's a flip side to this. What happens if your customer service isn't very good? What happens when you lose a dissatisfied customer?
We have a chart for that, too. Take a look...
Have you looked at our EXPERT SERVICES page? If not, please do so because you'll see how the tools and techniques we use are designed to directly impact (I mean skyrocket) your lifetime value of a customer.
You probably have some questions. I'll be happy to answer all of them and explain a lot more when we meet for your FREE STRATEGY SESSION. Give us a call at: 503-208-7704 or click here to have us contact you.
*I'm NOT an accountant (nor do I play one on TV), so this is not intended to be, nor should it be taken as, accounting advice. It's simply a way to look at your business from a marketing perspective.