The higher the Lifetime Profit Value of a customer, the more profit you make. It’s critical, therefore, to do everything you can to raise your average customer’s LPV ! Here’s how.
How to calculate Lifetime Profit Value of your Average Client:
1. Calculate your Average Sale (AS ) per customer (total sales divided by total customers).
2. Multiply by the Average Profit Percentage (APP).
3. The result is your Average Profit (AP) per sale.
4. Multiply by Average Frequency (AF) of purchase per customer, per time period (i.e. year).
5. The result is the customer’s marginal net worth per period.
6. Multiply by the buying life span of your average customer.
7. The result is the customer’s lifetime LPV.
FIVE METHODS OF INCREASING YOUR LPV
#1 Take a premium price position—Many people fear this technique. However, once you understand that low price is the least powerful of all motivators, your fear goes away. It’s true. Consumers are looking for value first. They really want a reason to buy your product or service other than price. Price is in the equation, but it is rarely first. Frankly, by assuming the premium price position, you’re likely to make more money and attract a better clientele. As long as you provide a quality product or service and give consumers a “reason why” they should buy, you have no need to fear this position. Look at what the premium price position has done for Mercedes Benz and the Ritz Carlton. The key to premium price is giving massive value.
#2 Encourage larger sales—Encourage larger sales by planning and training your staff, always keeping this goal in mind, and making sure offers are specifically structured to get people to buy more. It involves always having “up-sell” offers as part of your marketing efforts. You can also take advantage of packaging and add-ons. Offer an upgraded package or larger model.
#3 Give the customer a reason to buy more often—Getting your customers to buy more often may not require anything more than asking them. You should be sending offers to your customer base every six weeks. Some businesses take advantage of bounce back coupons, club rewards and prepublic sales, continuity programs, frequent buyer programs, etc. Whatever it takes, do it. Plan it. Make offers, extend special services, and give incentives for frequent purchases, etc.
#4 Take advantage of the Back-End—This tactic is akin to getting customers to buy more often. It simply means that you will market other products or services to them. This can go beyond the scope of your current products or services. It may involve joint ventures with other companies. Look at American Express. Do they limit the kinds of things they’ll sell you? No! They’ll sell just about anything and everything. That’s because they understand that to keep you as a customer, they must keep selling to you. If you sold stoves and ovens, do you think your customers might have a need for pots and pans? You can work out a deal with a local pots and pans retailer to share clientele. Realize that when you stop selling to your customers, they stop being your customers! Always have something to sell on the back end.
#5 Lower costs—To the Maverick Marketer, this means you spend as little as possible to get the job done with the greatest efficiency for both the short and long terms. It doesn’t mean skimping, but it does mean avoiding unnecessary costs—costs for marketing whistles and bells that may be pretty, but don’t advance the sale. When you leverage your marketing, your overhead automatically goes down.
When you clearly understand your customer’s LPV you will be more fully empowered. You will treat your customers like the treasures they are. You will understand that you can afford to spend more than you think you can to bring in a new customer. You will also recognize that the cost to acquire a new customer is much higher than it is to ask an existing customer to buy more or come back again.