The Top 10 Tips for Calculating
the Lifetime Value of a Client
Client value is the total benefit (tangible and intangible) that you, your business partners, and your coalition provide to a company throughout the life of the relationship. There's no better way to gain perspective on each and every client relationship, or to predict the impact of every management decision on long-term revenue goals.
1. Identify and document your ideal customer.
Get very specific. What are their job functions, key frustrations, buying behavior, lifestyle, age, willingness to advise you on new offerings, and typical spending habits with your firm? Do they value expertise and are they willing to pay a premium for good service, or are they transactional buyers who only care about price (a la WalMart)? Write down the percentage of firms in your portfolio that fit each description.
2. Keep a journal for one week detailing how much time you're spending with your ideal customer.
The next week, track how much time you are spending with your "less than ideal" customer. The third week, list three ways you can streamline the way you work with your "less than ideal" customer--beginning one month from the day you make the list. This may include everything from referring them to another firm, to delegating them to a more junior associate, to asking them to pay you in a more efficient way (paypal.com), etc.
3. Guesstimate how much your ideal customer will buy from you during the entire buyer/seller relationship.
For example, if you are a consultant, and a typical client stays with you for 2 years, and they are paying you $10,000 a month, then the current lifetime direct transaction value of a client is $10,000 x 24 months = $240,000. But wait--there's more.
4. Guesstimate how much business each client will refer to you over the next 2 years.
Let's say the typical client sends you 1 new client every 2 years at $10,000 a month. That's $240,000 in referral value.
5. If you have an advisory team of customers helping you design or launch new products or services, estimate the value of 1 successful sale for that new offering based on your customer's input.
(For this illustration only, assume that 1 new sale equals $20,000.)
6. Add all 3 figures.
The true lifetime customer value, including referrals and advisory support, is $500,000.
7. Provide your ideal clients with one free service, trial offer, or referral, just to show them how much you value the relationship.
No expectations, period.
8. Create and regularly administer a low-cost survey to find out how your ideal clients define, receive, and measure value.
Ask several representative current clients to tell you new ways they would be willing to extend their relationship with your company.
9. Create a Tandem Flying (MasterMind) group of professionals dedicated exclusively to defining, attracting, and creating lifelong clients.
10. Create a referral network of companies, clients, and individuals.
Share this with your clients and update often.
About the Submitter:
This piece was originally submitted by Lisa Nirell, author of recently published ebook, who can be reached at info@nirell.com, or visited on the or visited on the web.
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