Always Be Thinking LTV (Lifetime Value) of the Customer
By Fernando Camacho
Let me guess…you would like your business to make more money?
Quite a bold and obvious statement, but something I think we can all agree upon.
Yes, you love what you do—nobody gets into the dog business if you don’t enjoy it—but we still need to earn a living and try to get the most out of the business. To do that you need to always be looking for ways to increase your revenue.
When trying to bring more money in, almost all of the daycares that I work with are looking in the wrong place. They hire me to help them bring in more customers using online advertising (a very powerful and effective way to acquire new customers), as well as keep their company top-of-mind and position it as the best. Before I start building out their ad campaigns, I always start by determining their lifetime value (LTV) of their average customer, and then proactively create a plan to increase that number.
LTV is the most important number to know in your business—and the one you should be obsessed with increasing. If you can do that, your business will grow every single year.
What many unknowing business owners do is spend all of their time, money and marketing efforts on getting new customers—which although is important, is not the best way to increase revenue. The best way is to concentrate on your existing customers and continually find ways to serve them more. The reason this is so critical is that it is much easier to convince someone who has already purchased something from you to buy more than it is to get someone new to buy something for the first time.
The most difficult thing you can do is get someone to part with their hard-earned money. Before anyone makes a buying decision they have to first know they have a problem, then they have to become aware of the solution…then they have to discover the businesses that can help them…then they have to become familiar with and interested in your company…then they have to be convinced that they are making a good decision by going with your company, and then (and only then) will they hand over their money to you.
That’s a lot of steps in order to get a stranger to become a customer.
With your existing customers, you can skip right to the end of the sales process. They already know who you are, see the services you provide and are in the habit of giving you money without too much thought. The only thing you need to do is show them how you can provide more value to them. The easiest way to do that is to provide them with an irresistible offer for your next service offering.
For example: If a customer has been enrolled in a twice-a-week daycare package for four months, you might offer them a deal to upgrade to three times a week. Something like, they pay the twice-a-week price for the first month of the upgrade and then they would go to the regular three-times-a-week price from that point on. Yes, you’re not making any extra money on that first week, but if you understand LTV, you know you’ll be making a lot more money off of that customer over time.
You can also offer a complimentary service. If you have a regular daycare customer, offer them a grooming package at a discount (or boarding, or training, or anything else that makes sense). If they are happy using you for one thing, they may not need too much convincing to have you handle some of their other needs. But, they may just need an irresistible offer to motivate and persuade them to make the move.
This is an important thing to understand. Just offering them something without a discount (a reason to do it) will have little success. People innately do the same thing they’ve always been doing and are reluctant to change. That’s why you need to give them a nudge to break their habits and make a move to something different.
I recommend trying to ascend people in your service offerings once a quarter. The good thing is there’s always a holiday that provides an excuse for a special limited-time offer. Make it valuable (hopefully a no-brainer for the customer) and time-sensitive to motivate them to take action.
No matter how good you are about increasing the LTV of your customers, you will still need to bring in new customers on a regular basis due to the normal customer churn. So, you should always have marketing in place to get new people coming into your business; however, if you’re not first focused on taking amazing care of your existing customers and doing everything you can to help them ascend the value ladder in your company, you’ll be going in circles and never realizing the full potential of your business (plus it’s exhausting and stressful).
Once you determine your LTV of an average client, you know exactly what you can spend to get new customers. To do that, just look at your software (or estimate it if you have to) and see what package most (70–80%) of your customers take. Every business will have a most popular service. Then look to see how long most people stay customers, and do the math to calculate your average LTV of a customer.
Let’s use one of my current clients as an example. It’s a medium-sized dog daycare and boarding facility in New Jersey. The average customer comes twice a week for one year. They also board their dog for two weeks each year.
Here’s the math on that:
- 2 days of daycare/week for the year = $3,078
- 14 days of boarding (two, one-week vacations a year) = $952
- Total LTV of their average customer is $4,030.
Now that we know that number, I know how much we can spend on advertising. Even if we spend $2,000 to get one new customer (and we always do much better than that), it will deliver a 200% return on investment over time. You just need to keep in mind that it’s not on the initial purchase that’s important—it’s how much the new customer will bring you over the entire time they do businesses with you.
By knowing the LTV of your customers and becoming dedicated to increasing that number all the time, you will create a businesses that is unstoppable. Now, go calculate your LTV and then get to work with your marketing efforts and crafting your upsells!
Fern (aka Fernando Camacho) runs Overdog Digital, the digital marketing agency that specializing in dog daycare and boarding facilities. He’s also a popular speaker at conferences, consults with pet businesses all over the country, and is the author of six books. www.overdogdigital.com