Posts filed under 'Marketing'
Clients often ask us how much they should spend on acquiring new clients. It is important to know what the average client will spend over their life time with you. Statistics indicate that companies keep clients for an average of 3 years; however, please do not take this figure as gospel, as it could be far longer. One on my veterinary clients keeps their clients for 10 years, so it greatly depends on the type of industry you are in.
If you know, without doubt, that your clients stay, an average of 5 years, then use this figure in your calculations based on the example below.
Here’s why lifetime value is so important and how you can use it to increase clients, referrals and your income. Knowing this value is important for one major reason; when you know how much profit a client is worth to you, you know how much money you can afford to spend to find them.
Cost of Client Acquisition
How much you spend to get clients is called the ‘cost of client acquisition’ (that’s the fancy name!). So let’s have a look at an example of a Therapist…
- Let’s say a client uses your services once every month - 12 invoices a year - and it costs them £100 each time.
- Let’s also say they remain your client for 3 years and the profit margin is 50%. (You’ll know what your average client lifetime and profit margin is - it could be less or more than the example shown here.)
- Now multiply these four numbers and you have the lifetime value of an average client.
- £100 (Spend) x 12 (Months) x 3 (Years) x 50% (Net Profit Margin) = £1800
- That’s how much profit your average client is worth using this example!
Here’s where it gets interesting… If you manage to get your clients to have longer consultations, or a combination of services, or increase the frequency of transactions, the lifetime value goes up. So let’s say they opt for longer consultations each time, costing them £150, and increases the number of transaction from 12 a year to 18. Their lifetime value goes up to £4050 (£150 x 18 x 3 x 50%).
Imagine 100 clients like that! That’s an income of £405,000 over 3 years… or £135,000 a year! And it’s not difficult to increase the amount a client spends with you.
No longer doubt your marketing or advertising spend - calculate the ROI
So, if you only receive one conversion from an ad or promotion (and you spent £100 on the ad), knowing these above facts, it is quite possible that you have made a handsome profit on your marketing activity, though it did not seem very cost effective without these facts.
Further details of this subject can be found on our web site at: http://www.objective-marketing.com/marketing/the-essentials/lvc-life-value-cycle/ or by calling us on 020 8523 2028, or please feel free to post a comment or question on this blog.
August 8th, 2007
We had initial contact from the owner of a petrol station concerned about the problems she was having with her bank and overdraft facility. Her account was constantly in excess of its limit, with the result that her cheques were being returned.
After a discussion with her bank manager, it became clear that the financial position was unclear and the property valuation was not up to date. We quickly resolved those issues and then renegotiated her bank facility. Though she had to pay for a new valuation, this proved money well spent.
The entire finance was restructured onto a loan with an agreement that the interest rate would be reviewed after 12 months. Essentially, the existing commercial mortgage and overdraft facility were converted to a new mortgage over a longer term. This released cash back into the business and reduced the monthly repayments. As this was a restructure of the business finance, an agreement was reached that the interest rate would be reviewed if the trading was better, and if the bank account remained in credit then the interest rate would be reduced.
However, the underlying problem was the lack of management control. The lady in question spent very little time at the site and relied on various staff to maintain the controls. In addition she was living beyond her means, both from a personal financial position and a business financial position, and this we proved to her by the completion of a business plan based on the actual sales of the business, and realistic targets for ongoing sales.
The problem was that she did not generate sufficient cash from the business to meet her liabilities including her own drawings.
She felt she had 2 options:
A: Sell the property and business
B: Continue and hope that things would improve.
Clearly, the second option would not work without some radical changes which she could not implement. The first option would not have provided sufficient cash for her to continue to live at her required standard for very long, and her skills would not allow her to obtain employment to provide a sufficient level of income.
As a workaround we brokered a third option with another petrol station owner we knew that operates many sites across Southern England and needed a better base for his operations.
This new operator has now taken on the management of the business. He also continues to run his other sites from this new site as it has an office. He has made the changes necessary, mainly in staff working patterns and control of deliveries. The site is now profitable!
The deal involved the new tenant paying above market rate for the rent. This provided sufficient income to the owner to maintain her lifestyle. The new tenant will however receive 50% of the proceeds of the sale of the business, above an agreed figure when sold. He is taking a gamble that the business and property value will increase substantially, but felt that we could grow the business substantially, which of course, was in his long term interest as well.
The current owner has her existing equity protected, she will receive 50% of any increase above that and her income is maintained. It is in the interest of both parties to maintain the business and premises at a high standard to improve the potential sale price.
We also completed new wills for both owner and tenant as they now have assets to protect. Insurance policies are in place to repay the finance if necessary.
Summary.
Good lateral thinking has resulted in an arrangement that rewards both parties, meets both of their ambitions and ensures that good business practices are employed.
The end result is 3 happy people: the owner, the tenant and us.
We offer this type of service to all our clients. Financial restructuring could be a very positive step forward for your business.
Call our financial expert, Cliff Foster on 07944 866382 or e-mail us to discuss your requirments.
January 14th, 2007
As far as your business is concerned the most important word is “VISIBILITY“.
You may have a database of clients who only hear from you when it’s contract renewal time. Is it any wonder that they use another company because you were invisible, even though the client had bought from you before? Smart businesses value the “visibility factor” and know how to work it to their advantage.
You do not need a large advertising budget to be visible to your clients. There are so many cost effective methods to remain visible to current and potential clients. We create for you a visibility strategy which will maintain your visibility, and therefore retain client loyalty.
The simple answer is to stop looking for only new clients, and start spending some time with your existing customer base. It is five to ten times more expensive to attract new business than it is to work with your existing clients.
December 26th, 2006
Everyone needs marketing, even if you are a sole trader or micro business. The question is how well you engage with your market and what penetration you have achieved, and how this reflects in your turnover and profit. Though there are many confusing definitions of the term “marketing“, Objective Marketing take the complexity out of it and show you innovative ways to increase your business and profile. We are adept in all the “new media” techniques (also called Web 2.00) that enable you to interact with your clients or prospects as never before!
There are many different definitions of marketing
Consider some of the following alternative definitions:
- The all-embracing function that links the business with customer needs and wants in order to get the right product to the right place at the right time
- The achievement of corporate goals through meeting and exceeding customer needs better than the competition
- The management process that identifies, anticipates and supplies customer requirements efficiently and profitably
- Marketing may be defined as a set of human activities directed at facilitating and consummating exchanges
Which definition is right? In short, they all are. They all try to embody the essence of marketing:
- Marketing is about meeting the needs and wants of customers
- Marketing is a business-wide function - it is not something that operates alone from other business activities
- Marketing is about understanding customers, and finding ways to provide products or services which customers demand
All the elements of marketing are described within this web site. We have tried to explain them simply and clearly. You are invited to contact us for more information or send us a question via our blog.
December 26th, 2006