If I told you there were only two numbers that you really needed to know in order to grow your business faster, would you be interested? In other words, if I could simplify everything for you down to just two numbers that you needed to know in order to attract more customers/clients to your business, would you want to know what those two numbers are?
Now, before I share with you what the two numbers are, I need to let you know that you’ll probably be unimpressed by them. You’ll probably think, “Duh! I’m aware of these. There’s nothing new here!” But before you rush past this post, I want to encourage you to do two things, 1. Read it all the way through because the value isn’t in the numbers, it’s in the application of the numbers and 2. Make sure you actually know what these two numbers are for your business (which will then lead to a third number—based on the first two numbers).
So, are you ready to discover what the two numbers are that can change everything for your business?
Before I share them with you, I have to tell you that I just got off a phone call with another client where I asked him these two numbers and he didn’t know what they were for his business. In other words, don’t just rush by these two numbers, make sure you know them.
1. The average length of time a customer or client remains with you
I ask business owners and leaders this question all the time and I’d guesstimate that over 95% don’t know the answer right off the top of their heads—and that’s a problem. Why? Because you can’t figure out how much you can spend to acquire a customer (that’s the third number we’ll get to) until you know how long a customer will be a customer.
For example, in my previous career where I was the pastor of a large church, I knew that on average, most of the people who attended my church would be there for at least five years. That changed the way I thought about marketing expenses because I knew that, on average, someone who came would attend church for about five years.
Note: I know that a lot of people have a hard time thinking of a church as a business, but it is. It’s more than a business, but it’s still a business. When you’re running a multi-million dollar operation, you have to think like a business person or you end up out of existence.
That said, do you know how long someone remains a customer/client of yours? Are they a one-time purchaser? Or do they last for six months? One year? Three years? Five years? Ten years? If you’re not sure, go back through your client/customer records ASAP.
2. The average amount they’ll spend/invest with you per year
Again, if you want to know how much you can spend to attract a customer, you have to know how much an average customer spends with you each year.
Now, I know a lot of people in professional services businesses have a hard time defining that number because the dollar amounts often fluctuate greatly. For example, an attorney may have some clients that pay $1,000/year and others that spend $50,000 or $200,000/year.
So to make this easy to figure out, just use your aggregate numbers. If your business did $2M last year and you have 200 clients, then the average client is worth $10,000. Pretty simple.
Or back to my old church example, the average church person in America gives $1,000/year to church (Note: that means that a family of four would give $4,000/year). This is a mass aggregate number even though a specific person may give $50,000 or $50 per year. You just don’t know. But, in the aggregate, the averages tend to work out.
Note: If you’d like to break this number down to product/service lines that would be the next level in this conversation. For example, what you’d spend to acquire a $200 customer and a $20,000 customer should be different. But for now, I just want you to make sure you own the concept.
So, how much does an average customer spend with you per year?
Now, why is it so important that you know these two numbers and why can they change everything for your business? Because once you know what these two numbers are, you can multiply them together to figure out what an average customer is worth to you.
For example, in my church illustration above, if the average person who comes to church stays for five years and they give an average of $1,000 per year then the LTV (lifetime value of a customer) is $5,000. Even better, in a church situation, if that person is part of a family of four, that $5,000 is now $20,000. Note: I’m not going to complicate this formula by adding in the value of referrals, which jacks this number up significantly. You get the point.
So, let me ask you—and this is the key question—if you knew that each new customer/client to your business was worth $5,000, how much would you be willing to spend to acquire that customer/client?
You see, because most businesses don’t know the LTV of a customer, they tend to ask the wrong question. The question they ask is, “How LITTLE can we spend to acquire a customer?” When the better question that they SHOULD be asking themselves is, “How MUCH can we spend to acquire a new customer?”
In other words, you don’t want to be the “cheapie” in your industry. You want to be the pacesetter. You want to delight and WOW customers and clients. You want to over-deliver. You want to take their breath away. You want them to say, “I can’t believe what XYZ company just did!” And then you want them to rush out and tell all their friends and family members, “You’ve got to check out XYZ company!”
But you can’t do that apart from knowing your numbers. I’ve run into way too many businesses (and churches) that are losing in the marketing arena because they’re cheap when it comes to client acquisition.
And it doesn’t end at client acquisition. If you knew that your average client is worth $5,000, what would you be willing to spend to retain them? And delight them? And reward them for referrals? Etc.
You see, once you know the two key numbers above, they set you free to spend more money to acquire, retain and delight your customers and clients. And once you start doing that, you’ll see a quick uptick in your marketing efforts. In fact, I think you’ll see that knowing these two numbers really can change everything for your business.
So what are you going to differently (once you know your two numbers) to attract, retain and delight your customers/clients? Be creative. And blow your competitors out of the water! Being cheap is not what you want to be.
To your accelerated success!
P.S. If you have some examples of companies that have blown you away by doing something cool to attract you or retain you as a customer/client, make sure you share them in the comments section below (or click here if you’re reading this by RSS or email).
P.P.S. Obviously, knowing your profit margin is critical to this calculation (i.e. you can’t make unprofitable customers more profitable by attracting more of them). But don’t let more numbers get in the way of you being willing to spend more money to attract more customers (at higher price points).