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# How to Calculate the Lifetime Value of A Customer

Some seasoned entrepreneurs may say ‘break even’ or some other number is the most important metric, but I believe ‘lifetime value’ is perhaps the most significant measure to benchmark.

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I also know it’s one of the most overlooked and least understood metrics in business – even though it’s one of the easiest to figure out.

This number is important because it will give you an idea of how much repeat business you can expect from a particular customer, which in turn will help you decide how much you’re willing to spend to ‘buy’ that customer for your business.

Once you know how frequently a customer buys and how much he or she spends, you will better understand how to allocate your resources in terms of customer retention programmes and other services you’ll need to keep your customers.

The simplest way to estimate lifetime value: Plug actual or estimated (if you’re planning or just starting out) numbers into this equation:

(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer).

An easy example would be the lifetime value of a gym member who spends R400 every month for three years. The value of that customer would be:

R400 X 12 months X 3 years = R14 400 in total revenue (or R4 800 per year)

This is why many gyms offer a free starter membership to help drive traffic. Gym owners know that as long as they spend less than R4 800 to acquire a new member, the customer will prove profitable in a short period.

Once you have some idea of the lifetime value of your customer, you have two options in deciding how much to spend to acquire him or her:

1. Allowable acquisition cost: This is the amount you’re willing to spend per customer per campaign – as long as the cost is less than the profit you make on your first sale. This is a shorter-term strategy that makes the most sense when cash flow is a concern.

2. Investment acquisition cost: This is the cost you’re willing to spend per customer knowing that you’ll take a loss on an initial or even subsequent purchase. But you have the cash flow and other resources to absorb your initial marketing investment with this longer-term strategy.

If you can market your free initial memberships for less than R4 800 in the gym example, you can afford to expand your marketing campaign, as each new customer provides a return on your efforts.

This is great if you’re just starting out because you can develop the business by using cost-effective, measurable marketing programmes.

On the other hand, you may take a different view if you’re an established gym or the value of your customers is higher. In the end, it’s the lifetime value numbers that will determine the ultimate success of your company.

Brad Sugars is a startup expert and the writer of 14 business books including “The Business Coach”, “Instant Cashflow”, “Successful Franchising” and “Billionaire in Training”. He is the founder of ActionCOACH, a business coaching franchise.

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# Making Money Online: 10 South African Entrepreneurs Doing It

You don’t need an eight-to-five job or stacks of capital as the launch-pad to start a business and create your own source of income. Here are 10 entrepreneurs who’ve found some unconventional ways of making money online using common platforms.

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What do you know about making money online using Airbnb, Fiverr, YouTube or Instagram? While the average consumer uses these platforms to share their lives, talent and find holiday pads, a few local entrepreneurs have cashed in on these platforms to start lucrative a online money-making business.

Ten South African Entrepreneurs who are making money online:

# Fintech And Small Business Success: 5 Tips For SA’s Fintech Start-ups

Let’s look at what the future holds and how small businesses can benefit.

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Around the world, the fintech revolution is disrupting our relationship with money, both in our personal and business lives. This global market is expected to be worth \$10,499m by the end of 2018 – and digital payments account for much of this growth. This means it’s an exciting time for small businesses looking to get ahead. Whether they’re fintech developers, users or both, these businesses are putting new technologies to work and benefitting hugely.

South Africa’s small business community, like elsewhere, is embracing fintech with enthusiasm. To make the most of  this energy, new incubators and accelerators are setting up shop across the country. Cape Town, for example, hosted its first ‘Startupbootcamp’ which focused on creating scalable technology solutions for financial services and related industries. At Xero, we recently launched a virtual hackathon to enable South Africa’s technology entrepreneurs to compete with other forward-thinking developers on a global scale.

Against an energetic business landscape, fintech presents an attractive market for SA’s budding entrepreneurs. In today’s competitive business environment, new technologies are key to meeting your target audience’s needs and expectations.

So, how can entrepreneurs take advantage of what fintech promises? Let’s look at what the future holds and how small businesses can benefit.

## Think smart, grow fast

The range of available fintech solutions and tools is vast. However, new technologies alone are not enough to get your business off the ground – and keep it there. Here are five tried and tested tips for small business owners to keep in mind at all times.

Related: Fintech: Fusing Finance And Technology

### 1. Have an idea

Entrepreneurs first need an idea, then a plan supported by realistic goals. Your idea has to be good: ask yourself what you’re going to sell, and why. Once inspiration has struck, subject your idea to some hard scrutiny. Chances are someone else is already doing something similar – which is fine if you can do it better.

### 2. Build a plan

Your business plan is your map. It will help you launch your idea with structure and thought, and guide your company’s progression. You don’t need to stick to your plan like glue: Flexibility is certainly a virtue. A new twist or turn – as long as it’s on the right track – could take the business forward faster.

### 3. Be flexible

Of course, if something isn’t working then don’t be afraid to abandon it and move on. Fear of failure often results in entrepreneurs throwing good money after bad. Know when to scrap an idea, take what you’ve learnt and focus on something new. Remember, there’s no point crying over sunk costs.

When it comes to new ideas, look at what’s old and needs refreshing. Keep a constant eye out for ways to disrupt the status quo and offer people a better way of getting what they need. Even if your business is running smoothly and doing well, if you don’t stay alert, you could lose out on some low-hanging fruit to a competitor.

### 5. Use technology

Startups are typically constrained by limited resources – namely time, money and labour. A solid plan will help allocate your resources effectively. Fintech solutions can provide a strong backbone that helps you enhance your capacity, manage your cash flow better and improve productivity.

Related: 6 Lessons The Founders Of iKhokha Used To Launch An African Fintech Start-up

## The future of fintech in SA

South Africa is fertile ground for fintech. A lack of legacy infrastructure – particularly in outer lying areas – has created a large underbanked rural population hungry for financial services. What’s more, a growing urban middle class is demanding more sophisticated solutions to outdated forms of payment processing.

Fortunately, these demands are not falling on deaf ears. The local tech community is part of a dynamic development ecosystem that is working hard to innovate tools that provide greater financial access. With a clear gap in the market and an eager target audience, the future for fintech developers and users in SA is looking stronger than ever before.

Regardless of what your business offers, where it is based, it’s size or age, it’s time to join the fintech revolution. By embracing relevant solutions, your business will become more agile, efficient, responsive and ultimately, more successful.

# Loan Scams: How To Protect Yourself From Loan Scams

My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.

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The current economic situation we’re experiencing in South Africa has created a strong appetite for credit. Often consumers need to borrow money out of desperation just to help them survive. It is here where scam artists and unscrupulous marketers prey on the public, signing them up for services they do not need, with monthly debit orders adding to their woes.

It’s a tactic that we’re seeing more of these days: A company advertises that they can help you secure a loan, even if you’re blacklisted. They charge you for this ‘service’ and at the same time sign you up for a bundle of monthly paid-for add-ons, hidden away in the Terms and Conditions (T&Cs).

They are doing this despite the fact that it is illegal to advertise loans to those who are blacklisted (according to the National Credit Act), and that a company cannot charge to facilitate a loan (according to National Credit Regulator [NCR]). To make matters worse, in 99% of cases, the applicant is turned down, and now has to continue paying for services that they were unaware of signing up for in the first place.

Related: The Definitive List Of South African Business Incubators For Start-Ups

This is criminal behaviour, but for some reason it does not get acted on by relevant authorities (such as the NCR) which should be protecting consumers. With an estimated one million South Africans being preyed upon like this annually, those who are tasked with watching over the consumer should not shake this responsibility. That’s not to say the marketing industry is blameless – far from it, but without a regulatory body, there’s very little to be done to act on these rogue companies. Even Google benefits from these loan scammers – just type in “bad credit loans” and see how many ads pop into the paid search results.

My advice would be for consumers to be vigilant in managing their financial affairs, especially when it comes to “too good to be believed” offers. Here are some pointers to help consumers protect themselves:

• Never give your bank details to an unknown brand or marketing company that is not your own bank or insurance company.
• ALWAYS read the Terms and Conditions before signing up for anything. Most of these scams work because the extras you sign up for are buried in the T&Cs, making them part of the contract.
• Never agree to pay someone to find you a loan. The service provider is conducting an illegal act, since they cannot charge consumers for loan finding services according to the NCR.
• As difficult as it can be, do not apply for loans if you are blacklisted as there is little chance you will qualify. These scams are run by people who feed off/take advantage of people’s desperation, so rather speak to your bank to get advice about your situation.
• Sites such as Hellopeter are a great resource to check if companies are offering fraudulent services. It will only take a few minutes, but could save you years of problems.

As for what to do if you have fallen victim to these scams, complain in writing to the Credit Ombudsman (ombud@creditombud.org.za) as soon as possible. At this stage, we’ve lost faith in the NCR or the Consumer Protection Act stopping these types of scams. Rather get in touch with Carte Blanche, your local or national newspaper, and note it on Twitter and Facebook. My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.

Related: Seed Capital Funding For South African Start-Up Businesses