Money Metric: The Most Important Financial Figure in Business (LCV)
Often people don’t know all the numbers for their business, they don’t know what different lead sources they have, the quality of those leads and how much their acquisition costs are? There is one metric however that all businesses should be focused on, their Lifetime Client Value. Rob, in the latest episode of The Money Podcast talks through how you can work this out for your business and why it’s so important to develop your business and grow profits.
Key Takeaways
LCV: Lifetime Client Value - This is the value to you, in total, per client for the lifetime of that client. It’s the most important metric in any business. If you don’t know this, then you have no idea whether you should be finding new clients, creating new products for your existing clients, or selling the same products more to the,.
If you know this then you can loss-lead at the front. I often do training courses, and events that are cheaper at first, but people are then able to buy more expensive products. This works with serviced accommodation where you can sell back to the same clients. What can you afford to pay to acquire a client, is a really important number to work out.
A new customer is likely to be 4x as expensive as old customers. Once a customer has paid for your products then they have overcome the biggest friction point so it gets easier after that. You already have the trust of those people, and they are being bombarded with marketing from everyone else, so use that advantage.
LCV is: Total Sales/Total unique clients. You want to measure this every 6-12 months. You could rest from getting new customers, and focus on your current customers for a time period, which could dramatically your profit and reduce your cost.
As your LCV goes up, you can then reinvest that money in the front end of marketing, so you are gaining more customers. Variable costs like marketing you want to be testing and investing all the time. It’s wise to have 20% of your marketing budget which you can use to test and willing to lose.
MAC - Maximum Acquisition Cost - This should be about 50% of your net profits. Not all client sources are the same. You could have a Groupon client and then you could have generic clients from your website who’ve done a lot of research. You might find that the people who come through your website, could be spending a lot more on your products, but making very little money on the Groupon deals. So it’s important to track where you leads come from.
If you grow fast then your LCV could go down because everything is chaos. If you grow fast then sometimes the things that make LCV increase with like good customer service, etc aren’t there. So it’s a process of growing and contracting your business to grow your LCV.
Referrals. The happiest clients are the ones who are going to give you the best referrals. Increasing your LCV means that you have clients who invested heavily in your business which can lead to more and better quality referrals.
Best Moments
‘If you no this then you can loss-lead at the front.’
‘Sometimes things are harder than you think, but sometimes they are easier.’
‘LCV is the most important metric for every business.’
‘What can you afford to pay to gain that client.?’
‘You need a staircase of products, once your clients have come on board.’
‘80% of our products you won’t see if you haven’t completed a certain level of training.’
‘A new customer is likely to be 4x as expensive as old customers.’
‘AOV - Is the average value that your client purchases.’
‘It’s wise to have 20% of your marketing budget which you can use to test and willing to lose.’
‘Unless you test you don’t know.’
‘MAC - Maximum Acquisition Cost - This should be about 50% of your net profits.’
‘The happiest clients are the ones who are going to give you the best referrals’
VALUABLE RESOURCES
Business Breakthrough Summit Multiple Stream of Property Income
ABOUT THE HOST
Rob Moore is the host of the UK’s no. 1 business podcast “The Disruptive Entrepreneur,” as well as an entrepreneur, property investor, property educator, and holder of 3 world records for public speaking. He is also the author of 9 business books, 5 UK bestsellers, and the global bestseller, Life Leverage.
“If you don't risk anything, you risk everything.”
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