pendelton
Sun 30th Mar 2008, 02:39
The post by viola reminded me to mention LTV. LTV means everything to the longevity of a business, unless it is a hit and run scam, then we do not care about it anyway.
When you plan a business you want to consider what your customers will be giving you in terms of money, and you need to be able to estimate your sales.
Let's say you are running a shop like viola is doing. What is the Life Time Value of your customers? You see, it isn't the new costumers that will keep your business alive, it is the repeats.
Say you have a customer that buys two pies every week, at what, $10.00 each, and you keep her for 10 years. Her LTV is 2 x 52 x 10 x $10.00 = $10,400.00, if prices hold steady.
This is how you calculate your advertising dollars too.
If you spend $15.00 per week in a newspaper and get half a customer new from the ad per week, your $15.00 will bring in $5,200.00 over ten years. That is a great ROI. Too many people look at the short term advertising ROI, but that is just not the case in reality. Special sales of course are handled differently due to the short term nature of the sale, but, you can still get a good long term customer from a sale, so it can not be completely ruled out.
Adding a bit of personal touch, or a little something extra on occasion, is also a good way to build up customer loyalty and increase their LTV to you.
A loyal customer will build up their own LTV by that greatest of all advertising, word of mouth. This zero cost method of advertising has a 100% ROI for your dollar, pound, yen, or whatever.
So when you are debating about going that extra mile think of what that customers LTV is to your business, including their WoM advertising.
When you plan a business you want to consider what your customers will be giving you in terms of money, and you need to be able to estimate your sales.
Let's say you are running a shop like viola is doing. What is the Life Time Value of your customers? You see, it isn't the new costumers that will keep your business alive, it is the repeats.
Say you have a customer that buys two pies every week, at what, $10.00 each, and you keep her for 10 years. Her LTV is 2 x 52 x 10 x $10.00 = $10,400.00, if prices hold steady.
This is how you calculate your advertising dollars too.
If you spend $15.00 per week in a newspaper and get half a customer new from the ad per week, your $15.00 will bring in $5,200.00 over ten years. That is a great ROI. Too many people look at the short term advertising ROI, but that is just not the case in reality. Special sales of course are handled differently due to the short term nature of the sale, but, you can still get a good long term customer from a sale, so it can not be completely ruled out.
Adding a bit of personal touch, or a little something extra on occasion, is also a good way to build up customer loyalty and increase their LTV to you.
A loyal customer will build up their own LTV by that greatest of all advertising, word of mouth. This zero cost method of advertising has a 100% ROI for your dollar, pound, yen, or whatever.
So when you are debating about going that extra mile think of what that customers LTV is to your business, including their WoM advertising.