Understanding Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC) to Grow Your Business
The Keys to Growing Your Business with Online Marketing
Most Businesses that are looking for Online Marketing in Connecticut don't understand the metrics that truly matter. There are several factors that dictate business growth, but the most important factors are:
Customer Lifetime Value - #1 Key to Grow Your Business
Customer Lifetime Value is how much a customer is worth over the life of that customer.
Let's say you run a CrossFit Gym in Danbury and you charge $150 /month for 3 classes per week. I went to that same CrossFit Gym for 3 years before moving to Southbury.
Customer Will's Revenue Per Year = $1800
Customer Relationship Duration = 3 years
Total Revenue: $5400
Profit Margin on Revenue: 50% (for example)
Minimum Lifetime Customer Value: $2700
Referral Amplifier: I referred my wife and a friend of mine to this gym. My wife's CLV was lower because she joined half way through and left with me after 1 1/2 years. My friend Jenn's CLV is still going up because she's still at the gym for close to 2 years already.
Referral Value: $3150
My wife ($1350) + My friend Jenn ($900 per year, $1800 so far)
Maximum Lifetime Customer Value: $5850
Now you've got to run your stats. Look through every single customer you've ever had and figure out the Average Lifetime Customer Value!
Average Lifetime Customer Value: $4275 (Minimum LCV + Max LCV /2)
Customer Acquisition Cost - #2 Key To Grow Your Business
Cost of Customer Acquisition is the next metric to fully understand.
From the first look at hiring a marketing company in Connecticut you might think that if you're going to pay $750 per month for internet marketing that you've got to get 5 new customers to break even on marketing.
5 Customers @ $150 = $750
But after understanding Customer Lifetime Value you'll now understand that:
5 Customers @ $4275 = $21375
Even if you pay $750 /month and get 1 new customer @ $4275 LCV it still makes perfect sense.
Losing to Grow: CLV + CAC
There's a MASSIVE difference between average businesses and growing businesses. The difference comes down to understanding CLV & CAC and having a willingness to Lose.
If this gym needs to pay $750 for 1 Customer knowing that their LCV is $4275 then how do they eat in the meantime?
Debt Leverage is the answer. They'll need to call their local bank and get a business line of credit to be able to survive until their LCV catches up.
Growth-minded Businesses understand this.
The average business owner doesn't.
The question is.. which are you?