Customer Lifetime Value: What It Is (And Why It’s Critical To Your Internet Business). Plus How To Measure It And Then How To Improve It!

You have probably heard the term “customer lifetime value” before. But in this blog post I want to really help you understand what it means and why it’s so important for you to know this figure.

Ok, customer lifetime value in a nut shell simply is the amount of money on average that a customer will spend with you for their lifetime.

If you’ve had an Internet business for any length of time you’ll know how tough it is to get a customer to part with their hard earned cash. Because of this every customer is like gold…literally!

Customer Lifetime ValueDefinition Of A Customer

Now the definition of a customer is someone who you expect will buy from you again. If you make a sale and you don’t expect that person to buy from you again (either one of your other products or someone else’s products that you promote) then you don’t have a business. You have a money making scheme!

Anyway, back to the point.

It’s tough to get a first time customer so you need to treat them with respect and over deliver so that they will buy your future products and services.

Now think about this. If you have an email list of 10,000 people who have never purchased from you and a list of 1000 people who have purchased one product from you…who do you think is going to be more likely to purchase more products?

Naturally it’s the person that has purchased one product from you.

So you need to know what your customer lifetime value is and then try to improve that figure. And when you improve that figure it’s more easy money in the bank because you don’t have to try and convince them to make a 1st time purchase from you. They have already done that.

If they have purchased something from you and it’s good quality then they are very highly likely to purchase something from you again.

So you need a funnel of other products and services to provide to your 1st time customers.

Real World Customer Lifetime Value

Now let’s see how this customer lifetime value thing plays out in the real world.

Let’s say you have a $47 ebook as your lead in product. But then after your 1st product you have a membership site which offers even more help to your 1st time customers and it’s only $20 per month.

From running this membership site you find that your average subscriber stays with you for 4 months. So you make $80 per paying subscriber. I’m assuming it’s 100 percent profit here, which of course is not reality, but I’m trying to make the maths simple. :-)

Ok, let’s now say that this website has been up for one year. And in that in year the website gets 100,000 unique visitors. The website converts 2% of the visitors on the first $47 product. So that’s 2000, $47 orders in the first year. And let’s say that you get $40 in the bank after all the fees etc. are taken out.

All right, so you know a new 1st time customer is worth $40 to you.

Then what if 20% of the customers tried the $20 membership program and the average length of stay was 4 months. So that’s $80 per subscriber which is an extra $24000 and you need to add that to the original customer lifetime value. Here’s how you do that.

You work out the total amount you’ve made and you divide it by the amount of customers you have. So in this example it would be $80,000 for the ebook sales plus the $32,000 from the membership sales. Then you get that combined total and divide it by the amount of customers you have.

So now your customer lifetime value figure would be: $56.

Then what if you had a home study course for sale at $497 and 4% of your 2000 customer list bought that. That’s an extra $39760. Add that to your total revenue figure and divide the new total by your current customers to get a new customer lifetime value of $71.88.

Important Note: If this stuff goes totally over your head just know it does for me too sometimes. But it’s so important for your Internet business so hang in there until the end and know this is exactly why I created MYeMetrics!

So every new customer you get is now worth $75.88.

Puts into perspective those $1 trials that everyone is offering doesn’t it? They know the power of knowing what the customer lifetime value is.

Internet Business Motivation

If you didn’t know what your customer lifetime value was and you didn’t measure its progress you would not be nearly so motivated to keep trying to get it higher. You see, the model is simple, to make more money you simply have to create new products. That’s why you see “product launches” every week. People are scrambling to make new products. Probably not the best long term strategy (as far as a marketing funnel is concerned) but I’ll save that for another post.

Now if you provide people with new, valuable products that help them then you can make so much more money from getting each and every new customer.

In the example I have given if you just had the first ebook and that’s it then in one year you’d make: $80,000. But if you have a backend funnel like the example one I gave you then you’d make: $151,760.

I know which figure I’d rather have. :-)

But it naturally can get confusing fast trying to work this out, and that’s why I created MYeMetrics™ to work Customer Lifetime Value out for me. Then that just leaves me free to try and increase this crucial metric.

Now there’s a famous business saying which is this…

“What get’s measured get’s done.”

So if you track what your customer lifetime value is and you try to increase it then over time your business will increase.

Look, you don’t need to work harder to get the customers you already have. They’re there waiting. You just need to communicate with them and provide them with more value in the way of free information and products and you’ll make more money.

You need to think about this before the start of any new marketing venture. I know of an Internet marketer who (at the last time I knew) had a Customer Lifetime Value of $800.

So 2000 customers with an $800 customer lifetime value is:

$1.6 million!

Not bad, huh?

As I said at the beginning of the post, getting the first customer is hard work so to make that work pay off you must have a plan on how you can get the most money from each customer.

You need to track your customer lifetime value and focus on improving that figure. If you do that by using MYeMetrics™ to work it out for you OR whether you try to work it out manually…you must do it.

Finally, to finish, I heard that dominos pizzas customer lifetime value is $5000! Think about that the next time you go and buy a pizza. :-)

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