|
Here's
A Quick Way To Find Out How Much A Client Is Worth To You
Apr
30, 2006
Author: Tom Perkins - Business Solutions Coach and Certified
Personal Trainer
Do you know how much a
client is worth to you?
Do you know how to calculate their Lifetime Value (LV)?
If you don’t know then you need to find out.
Why? As
marketing wizard Jay Abraham explains in his book, Getting
Everything You Can Out of All You've Got:, “Until you
identify and understand exactly how much combined profit a
client represents to your business for the life of that
relationship, you can't begin to know how much time, effort,
and, most importantly, expense you can afford to invest to
acquire that client in the first place."
Clients are often worth
more to us than we realize.
It’s more than just the monthly membership fees they
pay. If you look
at only this number, you vastly underestimate the value of
your clients. A
client is worth the sum of everything they pay you over the
lifetime that they are your client, and all of the business
they bring you through referrals during that same time.
Ultimately, this can be a very large number.
Example #1 - Health
Club Membership Fee
This
example is for basic illustrative purposes only and does not
account for inflation or cost of living adjustments.
John Smith is a club
member who pays a monthly membership fee of $55.
On an annual basis, that translates into $660 per year.
If John continues as a satisfied client and barring any
change in circumstances (moves, becomes ill or dies), he will
probably stay with you for approximately 4.9 years (IHRSA/ASD 2002, Health Club Trend Report estimate).
Therefore, John’s potential lifetime sales value to
you is $3,135.
Lifetime
Value =
Monthly Fee x Expected Life
$3,135 = ($55/month
x 57 months) (4.9 years =
57/months)
At a minimum, you know
that John is worth $660/year if he purchases nothing else from
you but a basic monthly membership packaged and remains a
member. It does not take into consideration any additional service or
products John will buy or any revenues generated from his
referrals. These
are also important and should be considered in the overall
scheme of things.
Example #2 - Personal
Training Fees
This
example is for basic illustrative purposes only and does not
account for inflation or cost of living adjustments.
Susan Doe hires the
services of a personal trainer.
She purchases a three-month package which allows her to
work with a personal trainer for 10 hours/month at $60/per
hour. The total 3-month
package is $1800. If
Susan continues as a satisfied client and barring any change
in circumstances (moves, becomes ill or dies), she will
probably sign up for an additional 3-month and up to one year.
Therefore, Susan’s potential lifetime sales value to
you ranges from $1800 to 7200.
In both examples, these
clients bring additional LV in what they can generate in terms
of referral sales.
Be careful not to include these referral sales numbers
in the LV of the client that referred them.
This may cause you to overestimate your profits by
counting them twice. Once under the client that gave you the
referral and again when you calculate the referred client’s
Lifetime Value.
Every club wants as many
new clients as possible.
Unfortunately, very few owners/managers feel
comfortable in calculating the amount they will receive from
each client, and what they will need to spend to acquire that
client. It is
important to be able to estimate your customers' lifetime
value as closely as possible so that you can make informed
decisions about your marketing costs and budget.
Now
that you have determined how much your client is worth to you,
read Part Two of this Series about,
“How much do
you need to spend to acquire a client?” This particular article looks at how to calculate
Lifetime Profit, the difference between actual versus
potential client value, and how much you should spend on
marketing expenses.
Tom
Perkins is a business development coach and certified personal
trainer who leads fitness professionals to profitability.
Send
an email to thecoach1-140208@autocontactor.com
to receive the Essential Fitness Business Success Checklist.
Or visit his website at http://www.fitnessindustrysolutions.com
Article
Reprint Agreement
|
