Whether it’s getting a new client or keeping an old one, how do you calculate customer worth? In the world of “best practices” and professional marketers, they call it lifetime value (LTV). Listen up, Promotional Products Distributors, I’m going to walk you through how to quickly find out what your customers are worth and what to do with that information.
Calculating Lifetime Value (LTV)
For sales professionals and distributors in the promotional products industry, it’s easy to get your estimated LTV so you know how much a client is worth to your business…
(Average order size) x (Average number of orders from a client)
In case you don’t have those number handy, here are some averages from our own research:
- Average order size: $1,400
- Average number of orders: 3.5
- Estimated LTV: $4,900 ($1,400 x 3.5)
- Estimated profit per customer (after expenses or commission split): $883 ($4,900 x 17%)
Put Your Customer Lifetime Value To Work
Now what? Knowing your customer worth or LTV helps in many ways. For example, what are you willing to spend to acquire a new client or to retain an existing client? Knowing this number can help you design and prioritize prospecting campaigns, referral campaigns, loyalty programs, and retention efforts.
Also, this can help you create a promotional marketing business plan around your target income (after expenses). For example:
- Your target income: $50,000
- Number active buyers you need to hit your target: 57 ($50,000 / $883)
- Number orders per week you need to hit your target: 3.8
For retention programs, knowing LTV makes it easy to allocate some percentage to retaining each client. For example, setting aside $20 per client per year is only a 1% investment to retain a client. That $20 could be spent in many ways, including email campaigns designed to retain and build loyalty or an annual thank you gift.