{"id":4479,"date":"2012-11-06T20:46:42","date_gmt":"2012-11-06T20:46:42","guid":{"rendered":"https:\/\/www.sanctuarymg.com\/academy\/?p=4479"},"modified":"2023-06-06T21:33:03","modified_gmt":"2023-06-07T01:33:03","slug":"internet-marketing-and-customer-life-time-value","status":"publish","type":"post","link":"https:\/\/www.sanctuarymg.com\/academy\/strategy\/internet-marketing-and-customer-life-time-value\/","title":{"rendered":"Customer Acquisition: How Much Should You Be Spending?"},"content":{"rendered":"

Professional marketers know the rule: \u00a0You don’t make your money from the first sale. You make your money from the repeat business<\/span>.<\/p>\n

The vast majority of profit derived from acquiring a new customer comes in the months and years AFTER their initial purchase. But how much can (or should) you be spending to get new customers? How much is too much and how much is too little?<\/p>\n

For small business owners, a little understood dynamic of marketing is the concept of Customer Life Time Value (CLTV). \u00a0For my money (literally), Customer Lifetime Value is THE way a business measures the value and opportunity related to their repeat business.<\/p>\n

So, we’ve put this post together to help walk you through the basics and we’ve even provided a handy Excel Spreadsheet you can use as a template to calculate Customer Lifetime Value for your Internet Marketing<\/a> efforts.<\/p>\n

What is Customer Lifetime Value?<\/strong><\/p>\n

According to the Harvard School of Business, Customer Lifetime Value<\/a> ‘helps a marketing manager arrive at the dollar value associated with the long-term relationship with any given customer, revealing just how much a customer relationship is worth over a period of time.’<\/p>\n

In short, it helps business owners and marketers decide how much money they’re willing to spend in order to acquire a new customer. So while many (most) FIRST TIME sales won’t result in a profit, they will ultimately yield a greater profit to the business in the longterm.<\/p>\n

\"\"Classic example — \u00a0Remember those free AOL disks and CDs that used to come in the mail every few days? Each one giving you a 30-day free trial to America Online? (I know, I know\u2026.I’m old). \u00a0Well, with the postage, the cost of the CDs, the support marketing and the cost to fulfill that service, it cost the company about $35, on average, to get a new customer.<\/a><\/p>\n

But didn’t AOL only charge about $14.95 a month to be a member? How did that make sense? Because when you consider that the average subscriber lifecycle was about 25 months, AOL ended up making about $350 per new customer. \u00a0While not every customer stayed with the company the full 25 months, when looking at the total campaign and the average contribution overall, the numbers made sense\u2026and they made billions. Say what you will about the fall of AOL — the strategic blunders, management missteps, & overvaluation in the stock market — their marketing team knew how to grow their business.<\/p>\n

If you KNEW that $35 invested today would equal $350 in profit in two years — you\u2019d jump at the chance to sink as much money into that investment as possible.<\/p>\n

How do you calculate Customer Lifetime Value?<\/strong><\/p>\n

For our purposes here, I’m going to forego the use of Net Present Value Tables or Discount Rates. \u00a0Hey, when interest rates are above 2%, we can revisit that conversation right?<\/p>\n

In the simplest form the variables are:<\/p>\n