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A Secret Marketing Formula You Can Use to Grow Your Business
What if there was a way to know exactly how much a customer was worth to your business? Do you know how to use that information? By the time you finish this article you will not only know the formula for determining customer value, but also how to do it. use it the formula to grow your business. Let’s get started!
First, we’ll start by explaining the Lifetime Customer Value (LTVC) formula, then, once it’s understood, I’ll explain the benefits and how to use it.
Here is the formula:
- Determine the amount spent (per ticket) by each customer (an easy way to do this is to check your credit card merchant statement)
- Take your expenses
- Answer = “Profit per sale” (PPS)
- Multiply your PPS by the number of sales per year
- Answer = “Profit per Year” (PPY)
- Multiply PPY by the number of years used
- Answer = LTVC
Now we’ll look at how knowing LTVC can help your business.
How will you benefit?
Now let’s look at some of the benefits of having this information. But first, what if you didn’t have it? What if you don’t know how much your average customer brings to your business?
Not knowing LTVC puts you in a position of guesswork when it comes to your marketing decisions. How do you know how much to budget for a campaign? How do you plan? Do you see the problem?
Now, on the other hand, once you know the lifetime value of your average customer it opens up a lot of opportunities.
What it means
Say you own a restaurant, and your average (typical) customer spends $30 each time they visit, $15 of which is profit. Let’s also say that they visit your restaurant 12 times a year, and, that they stay with you for 2 years on average.
What does that mean? It means that your average customer is worth $15 (profit) x 12 (visits/year) x 2 years = $360 in profit for your business.
Now, you know that the average new customer can be worth about $180 in profits over the next 12 months – would you be comfortable spending up to $100 to get them in the door? Most business owners can do that.
Here’s an idea…
Instead of putting $500 or $600 a month into a yellow paper ad, why not send a letter to a new customer offering a FREE meal (valued at $30 of course) to come in and sample your great food. Better yet, why not send a postcard with a message explaining what you’re giving, and a GIFT CARD at $30 for the price loaded on it?
You can give the title something like: “Anyone who said there is no such thing as a FREE lunch obviously didn’t know about my store”!
Such a title should be considered by anyone! Do you agree? Then you can follow up with something like this:
Allow me to introduce myself.
My name is (your name is here). I am the owner of a unique little restaurant that you can see in the neighborhood, called “Wild Herbs”.
We’d love to be introduced, so come in and see our menu – it’s unlike anything you’ve seen – so I’m sure you’ll be impressed!
To make this “offer you can’t refuse” I put a GIFT CARD worth $ 30. Call it a bribe or whatever you want. But if I’m right, and you’re as impressed with our delicious food as I think you will be – then I’m sure you’ll want to keep the card and become a member of our WILD VEGGIE CLUB. I will explain all the other benefits when you enter.
Wow, what a promise!!! ‘Who said there’s no such thing as a free lunch?’ It’s at WILD VEGGIE’S!
We look forward to meeting you. Why don’t you come in today and claim your free food?”
Yours truly, _______”
There are many ideas about how to bring in a new business. But before you do…why not start by finding out the LTV of your typical customer and use it to your advantage?
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