Customer Lifetime Value

Get Results: customer lifetime value
Get Results: Customer Lifetime Value

It is crucially important to know the lifetime value of your customers, so that you know what you can afford to spend on marketing to acquire each new customer.

Let me show you what I mean. Let’s assume for illustration purposes that you are a  gym owner and you want know what the lifetime value of a gym member is. Let’s say your average spend is £20 every month and an member stays on average for 3 years. The value of that customer would be:

£20 x 12 months x 3 years = £720 in total revenue (or £240 per year).

Now work out what your Cost of Sales are in servicing that customer each year.

Let’s assume the Cost of Sales is £40 a year, then you have £200 left over for marketing and profit in year one. If you can acquire a new member for less than £200 you will be in profit within the first year. You won’t have the marketing cost in year two and three so you will make £200 profit in each of those years.

Now you can see even from this hypothetical example why many gyms offer a free starter membership to help drive traffic. Gym owners know that as long as they spend less than £200 to acquire a new member, the customer will prove profitable over a short period of time.

 

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