Lifetime Value Of A Client

Lifetime Value Of A Client

The name gives the concept away, and it’s so simple that we remain dumbfounded that so many people in business never consider it.

Here’s what it’s all about. By definition, the Lifetime Value Of A Client (LVC) is the total profit produced by an average client over her lifetime association with you. Once you know your average clients lifetime value you are then in a position to make a judgment on how much you can afford to spend to convert a prospect into a client.

For example, let’s say that the first time your average new client does business with you she spends $125.00 ($45.00 haircut & $30.00 product) She comes back in every 6 weeks for a hair cut, maintains her color every 12 weeks and buys a product about every 2 months. In the course of one year she is potentially worth $750.00 to you. She is going to be your client for 5 years. (Then she moves to Florida or gets a divorce, because “life is a moving parade”) In 5 years, she will have spent a minimum of $3750.00 with you.

Now you have to figure out how much of that is profit to you. Let’s say its 50%. So you (theoretically) will make $1875.00 profit on your average client over the next 5 years.

How much are you willing to pay to get a client? You could spend up to $1875.00 and still break even in 4 years. We don’t suggest that. But up to $50.00 seems reasonable. Wouldn’t you invest $50.00 to get $1875.00 back in 5 years? But you don’t even have to wait the full 5 years to start getting it back. On the first sale you make money, more than enough to recover the $50.00

Let’s say that your average client refers at least one other client to you. Now your profit from that client is $3750.00. $1875.00 from the first client, at $1875.00 from the referral. Referrals are even more profitable than clients gotten through advertising.

Start calculating the lifetime value of your average client. One of your foals should be to increase this value by getting your clients to refer more often, increasing the average ticket, making repeat clients more frequent, and selling them more product and services.

If you have any questions or need some “PROVEN” salon marketing advice:

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Michael Colosi

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286 Responses to “Lifetime Value Of A Client”

  1. Digg…

    While checking out DIGG yesterday I noticed this…