Southend Accountant helps with lifetime value of customer

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Presentation Description

How advertising shoud be thought of as an investment rather than a cost

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Presentation Transcript

The lifetime value of a customer:

Why advertising spend is an investment and not a cost The lifetime value of a customer

Aims of presentation:

Aims of presentation Explain what is meant by the lifetime value of a customer Explain how marketing spend is actually an investment in that future value Share knowledge

Lifetime value:

Lifetime value A customer will stay with a business on average for 7 years (will vary for each business type) That customer will make many purchases over that time period (at a profit margin) Total profit you make from that customer over that 7 year period is lifetime value

Numerical examples:

Numerical examples Example A Business sells products for £60 at a 50% profit margin (so £30 profit per sale) Customer buys on average 4 products a month Lifetime value therefore: 7 years x 12 months x 4 sales x £30 profit = £10,080

Numerical examples:

Numerical examples Example B Business sells products for £1,500 at a 80% profit margin (so £1,200 profit per sale) Customer buys on average 2 products per year Lifetime value therefore: 7 years x 2 sales per year x £1,200 profit = £16,800

How much would you be willing to pay to attract those customers?:

How much would you be willing to pay to attract those customers? Example A: You make £10,080 profit over 7 years Example B: You make £16,800 profit over 7 years Would you be happy to pay say 10% or even more? Would you not repeat this action as often as you could? Is the 10% you spend an investment (rather than a cost)?

The biggest mistake with lifetime value :

The biggest mistake with lifetime value Looking at the “cost” of marketing against the first sale and not the lifetime value

Numerical examples:

Numerical examples Example A Business sells products for £60 at a 50% profit margin (so £30 profit per sale) Customer buys on average 4 products a month Lifetime value therefore: 7 years x 12 months x 4 sales x £30 profit = £10,080 10% marketing spend of £1,008 compared to first sale £30 profit

3 final tips:

3 final tips Work out the lifetime value of typical customers for your business Work out how much you would be prepared to spend to acquire that lifetime value Invest in marketing

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