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# Calculate the Lifetime Value of a Customer

Devise a successful marketing strategy based on the actual value of your customers.

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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. 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.

Why is this particular number so important? Mainly 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 they spend, 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 – and keep them happy.

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

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:

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

Now you can see even from this hypothetical example 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 amount of time.

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

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 for 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. Think a high-end facility with premium monthly fees and value-added options such as spas or personal trainers.

You may be fine spending R8 000 to get a R6 000-a-year customer and waiting until the first quarter of the second year of the membership to start profiting from your investment.

The point is that you’ll never know how to develop an optimal marketing budget unless you know what the return on your investment needs to be. This knowledge is vital because it will help you make marketing decisions based on the reality of your own numbers rather than the promises of some new media programme.

Knowing lifetime value also lets you see how, or if, you can discount. It will help you avoid the potentially disastrous effects of discounting when your business needs cash flow to survive. In addition, you will find innovative ways to build value upfront and create offers that drive enough volume to support and eventually increase your overall lifetime value number.

So take some time to work the numbers in the very simple lifetime value equation, especially if you’re still in the planning stages for your business. Remember to build in some variation and see if your current plans support the numbers you come up with. If so, that’s great.

If not, that’s also great because you’ve determined on paper what you need to change to make your numbers work.

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.

# Dr Greg Fisher’s 5 Key Principles For Executing Your Growth-Driven Strategy

Exceptional strategy is based on five key principles: A good plan, the choices and trade-offs you’re willing to make, differentiation, your profit equation and activity integration. Here’s how you can strengthen your business to drive higher growth and profits.

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## Your key implementation plan framework to get you started

Dr Greg Fisher is a professor in the Management and Entrepreneurship Department at the Kelley School of Business at Indiana University and a visiting lecturer at the Gordon Institute of Business Science (GIBS) in South Africa.

Over the past three years, GDP growth in South Africa has been small. Economists expect 2018 to see GDP growth at 1% or less. And yet the growth strategies of businesses are aiming much, much higher. How do you target 15% to 20% growth under such tight economic conditions?

According to Dr Greg Fisher, a professor in the Management and Entrepreneurship Department at the Kelley School of Business at Indiana University and a visiting lecturer at the Gordon Institute of Business Science (GIBS) in South Africa, you can’t just ride the momentum of the economy. You need to do something more to fill that gap. And therein lies the challenge, because there’s no silver bullet that can drive double digit growth.

“Ultimately, you need to be able to critically think through and formulate multiple ways to fill that gap,” explained Greg during his keynote strategy workshop at the 2017 ThinkSales Sales Leadership Convention. “Success in anything — sports, raising children, learning and business — is driven by fundamental principles that need to be applied with balance and moderation.

“A conceptual understanding of what to do isn’t enough. You need to take action — your ability to drive double digit growth lies in developing a strategy based on five key principles, and then executing it.”

Related: How To Make Better Business Decisions That Drive Productivity And Profits

Here are the five key principles you must unpack in order to formulate and execute a growth-driven strategy.

## 1. You need a good plan

Every successful business shift begins with a good theory. It doesn’t need to be sexy. It does need to be insightful, and give you a map of what to do next, what not to do next, and what value needs to be created through which channels going forward.

Leverage foresight, insight and hindsight to formulate a mental model and hypothesise (or develop a theory) that relates to your market.

Take Steve Jobs as an example. He hypothesised that people would pay a premium price for ease of use and an elegant design in computing. This would form the foundation that other digital products could be added to.

Strategists are constantly faced with choices and trade-offs that need to be made if you’re going to stick to the plan. Remember, true value is created when you make a choice, and don’t try to dabble in multiple things at once. You need a clear and manageable goal. Choices require decisions, often relating to where you will be channelling your resources. A trade-off is not doing something. What will you do and not do? This must align with what you’ve already theorised. It doesn’t serve you or the business to follow too many paths and options.

Which markets will you pursue vigorously and which will you leave alone? Which customers will you target, and which won’t you? Which products will you produce to enact your theory? Which activities will you engage in inside your organisation, what will you outsource and what won’t you do at all? Who will you hire? Who won’t you hire? And which assets will you choose to own?

Everything is a choice and a trade-off. Take Ikea, a retail brand that’s enjoyed 70 years of successful growth. Why? Because of fundamental and particular choices relating to product designs and style. Ikea isn’t everything to everyone — it has a very specific value proposition and delivers on it relentlessly.

## 3. Differentiation

This is fundamental. Even if you’re the low-cost provider in your space, you still need to be doing something different to drive those costs down; you still need to be differentiating yourself and the way you operate. The world is more competitive than it’s ever been, and buyers have more access to information and options than they’ve ever had. To be competitive, you need to really interrogate your differentiators.

## 4. Profits

The strategy conversation tends to happen early, the profit conversation happens late. You need to bring them together. When you’re having a strategy conversation, you need to understand how it will drive bottom line growth. The role of strategy is to bridge what customers are willing to pay for a product or service, and what it will cost you to deliver it. The strategies you adopt are determined by theories, choices, differentiation and costs.

The formula is the following:

Profit = the number of products you sell x price of product — expenses.

How does your strategy impact this equation? Which lever will your strategy pull? You ultimately want to drive profit, and to achieve that, your strategy must point to one or more of these three elements.

In other words, either you need to sell more products, or you need to increase the price you can charge, or you need to decrease the expenses you will incur to get that product to market (or a combination of all three).

The key question is therefore:  What can you influence to drive the outcome you want? What strategy will drive profit?

The variants on the profit equation that you need to consider include:

• Industry average competitors
• Uniquely differentiated competitors
• Low-cost competitors
• Competitors with a digital advantage.

On the other side:

• Customer willingness to pay
• The cost to produce and deliver your goods.

Profit lies in the middle. Focusing on two or even all three of the levers is challenging, but it will result in the greatest results if executed properly.

But remember: The management of the profit equation is ongoing. You need to manipulate it in action and create a strategy that can be adjusted when and where necessary, always tying it back to the bottom line.

Ideally, you want to spend less while delivering more, resulting in higher profits. Before you can do that though, you must identify your profit levers. Finally, does your profit equation tie back to your points of differentiation, trade-offs and choices and ultimately business theory?

## 5. Activity integration

Your fifth, final and most important point is activity integration. You need to make your strategy happen. The previous four steps are meaningless unless you can do something with them.

Activity implementation is the result of the business performing a certain set of discreet activities. These include the sales force, managing customers and managing returns. This is your core and critical to business. Think of each business unit as a part to a mechanical watch.

The challenge becomes: How do they all work together in the service of the four points above? Your goal is to ultimately create something that is beautiful and precise. Independently, these departments are meaningless. Success lies in multiple activities, all working together to drive your strategy.

## Start by driving your strategy and ensuring integration

To get started, consider which activities are necessary to drive your strategy and ensure integration. How these activities work together reinforces everything you’re doing. Activities amplify each other, until 1 + 1 = 3.

The problem is that multiple activities working together is difficult to replicate. There is no single activity (or silver bullet) that will drive success. You need to optimise all of your activities — you need ten primary activities, and you need to do them all very well. That’s activity integration.

The problem is that it’s not easy, which is why so many organisations fail at this stage.

If you can get this right though, the results will speak for themselves. 1x1x1… to 10 = 100%. 0.9×0.9×0.9… to 10 = 35%. That’s the power of activity integration. It also means that doing each activity at 90% will bring the entire organisation down to 35%.

Walt Disney conceptualised the entire Disney business according to activity integration. Each element worked into the next, starting with movies at the centre. Get that right, and all the other activities — Disneyland, merchandising and so on — work. Negate the movie piece and the rest disintegrates.

### Bringing it all together

• Do you have a clear, consistent and concise theory on how to succeed?
• What definitive things are you choosing to do and not to do?
• How do these choices drive differentiation? You need a core differentiation that customers can appreciate, value and buy into.
• How does your differentiation ultimately drive profits? Can you articulate it, and what levers are you pulling?
• What activities do you need to implement your strategy, and how do they ultimately integrate with each other?

### 1. Theory

Briefly describe the THEORY underpinning your organisation’s strategy.

A theory is a mental model about how your organisation does (or could) create value. It reveals hypotheses about how an organisation can create significant value. It usually entails:

• Foresight about the evolution of the industry in which you operate
• Insight into how your organisation can create value in the industry as it evolves
• Hindsight about how you might build past competencies, relationships and assets.

We theorise that

• What are the assumptions embedded in your theory? Are they valid? Could they be tested?
• Would the other leaders in your organisation describe a similar theory underpinning your strategy? Do you have a consistent view of opportunities and mechanisms for value creation across the organisation’s leaders?

Identify the CHOICES & TRADE-OFFS that you have made, and need to make, to act on your theory.

A choice is a clear decision to do something specific and meaningful. A trade-off is a clear choice not to do something that is somewhat tempting or attractive to pursue.

• We have chosen to Identify 3 to 5 important strategic choices you have made
• We still need to make choices with respect to Identify 3 to 5 important strategic choices you still need to make
• We have chosen NOT to Identify 3 to 5 important trade-offs that you have made
• We still need to decide NOT to Identify 3 to 5 important trade-offs that you still need to make.

• What’s preventing you from making the choices and trade-offs that you still need to make? What would it take to definitively make these choices?

### 3. Differentiation

Identify the points of DIFFERENTIATION that are embedded in what you do (i.e. in your theory, choices and trade-offs).

Differentiation is something that clearly distinguishes an organisation from others in the industry. It is something that other organisations targeting the same customers are not doing and which those customers ultimately find valuable.

• We are different (or strive to be different) with respect to

• Do your customers see and experience these points of differentiation? Would they agree you are different in this regard?
• Would the employees in your organisation describe similar elements of differentiation? Do you have a consistent view of your organisation’s differentiators across the organisation?
• How easy is it for your competitors to emulate your points of differentiation? Could they easily copy your points of differentiation? If not, why not?

Related: Learning To Let Go: 5 Realities Of A Scaling Start-up

### 4. Profits

Identify how your points of differentiation drive PROFITS.

• A useful way to examine the connection between strategy and profits is to examine a simple version of the profit equation as follows: Profit = (Number of products sold x Price of products) – Expenses. Identify how the organisation’s differentiation elements drive profits as follows:
• Identify those elements of the profit equation that apply for your strategy and complete the statement where applicable
• We are able to sell more products than rivals (YES/NO) because
• We are able to charge higher prices for our products than rivals (YES/NO) because
• We are able to reduce our expenses relative to rivals (YES/NO)because

Check those that are appropriate and complete the statement

• We sell more products because
• We charge higher prices for products because
• We reduce expenses because

• What more could you be doing to increase volumes, charge higher prices and/or reduce expenses?
• Is the profit equation consistently understood across the organisation?

### 5. Activity integration

Identify the ACTIVITIES needed to deliver on your points of differentiation, and assess whether these activities are adequately INTEGRATED with one another (i.e. reinforce one another).

• STEP 1. Write up a brief description of each activity required to deliver on your organisation’s elements of differentiation.

An activity is something that a organisation does repeatedly in the process of developing, marketing and delivering products and services to clients.

• STEP 2. Draw links between the activities that currently reinforce each other.

Reinforcement between activities comes about when two activities support each other such that when they operate together, they are more effective than if they operated independently i.e. doing one activity well enhances the other activity.

• Do we consistently view our organisation as an integrated system of activities that reinforce one another, or do we tend to deal with each activity independently?
• Are our activities arranged in a way that consistently and effectively delivers on our key points of differentiation? If not, how could they be rearranged to more effectively deliver on key points of differentiation?

### Performance & Growth

Wooing customers requires a sincere devotion to giving people value.

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Jay Abraham is one of the world’s leading business consultants and mentors to people like Tony Robbins, Daymond John, Joe Polish, Stephen R. Covey and Russell Brunson. Over the years, he’s built and scaled eight- and nine-figure businesses, and is constantly sought after by some of the most successful companies to help grow their businesses fast.

I recently spoke to Abraham about the ways in which he grows an online business, and what he told me was that it boiled down to three primary strategies applicable to growing any business, whether it’s online or offline. Most people who struggle with this know that it’s hard to grow or scale a business.

They think that to grow a business, they need major capital or funding. While that might help, it’s also a shortcut that doesn’t always pan out. Sometimes, having the coffers filled can actually sidetrack you. Instead of looking for ways you can become profitable, you look for ways to grow by spending more.

The answer to growth is not in merely scaling out your spend. It doesn’t equate to having more employees or a bigger office or any of those things for that matter. The best way to actually do this is organically by bootstrapping. If you’re a solopreneur or running a small business, then this information is integral to your own growth.

Rather than trying to spend more, you have to focus on conversions. Conversions are at the heart of any business. If you don’t have an offer that converts, or the capability to track those conversions, then you’re wasting your time. You can’t scale by any measure without a properly converting offer in your business.

Related: 5 Best Online Businesses To Start This Year (Infographic)

Rather than spending money on the superficial, you have to spend it wisely to get that converting offer working. That means that if you spend \$1 to acquire a customer, you have to ensure that you’re making that \$1 back and earning more. Otherwise, you have a business that’s losing money, not one that’s making money.

That’s the premise and basis for building and growing business. You simply can’t scale to any degree without that. There are many ways to actually do this. Creating a converting offer can be done through a variety of mediums. One of those mediums is the webinar.

Russell Brunson often tells the story about how a single webinar saved him from bankruptcy twice. Liz Benny and Kent Clothier have used a single webinar to generate millions of dollars in sales. It’s a powerful medium you should be using to sell something.

There is a particular process to selling through the webinar. Most entrepreneurs confuse selling through a webinar as teaching. You shouldn’t be teaching at all. You should be breaking down limiting beliefs through the vehicle of stories.

The truth is that most people don’t buy through webinars because they have false or limiting beliefs. These beliefs are attributed to the vehicle, or offer itself, as much as they are to internal and external beliefs. Successful webinars focus on destroying those false beliefs. Once those dominos topple down, selling becomes almost effortless.

Abraham talks about three primary strategies for growing your business fast. Each of these strategies has several tactics tied to it. But, at the heart of it, there are really only three paths forward. If you can heed one of these paths, you can likely achieve your business goals.

However, keep in mind that the path from zero to seven figures is not going to be the same as the path from seven to eight figures or from eight to nine figures and beyond. The skills you need to use to get to seven figures in your business are not going to be the same skills you use to move you further up. And it’s easy to get stuck in one cycle, often repeating your revenue year after year and not moving beyond that.

Anyone who’s serious about making money online understands that there are challenges when going from one phase to the next. It can be frustrating to say the least. And without a proper sales funnel, actually growing the business will be difficult. You need the right systems in place in order to capitalise on the process.

What most people fail to focus on are the email sequences. How can you bridge that divide between leads who enter your world and those who become customers? The answer is through the email sequence. The email sequence is key for building a relationship with the lead by telling your story.

Related: 5 Tips For Running A Successful Online Business

## 1. Acquisition

The first strategy for growing your online (or offline) business is through acquisition. How can you get more customers? Often, to do this, you need to setup a front-end sales funnel. You need to have some sort of offer that will bring the customer into your world, whatever that might be.

Abraham says that there are loads of different tactics that work here. Webinars are one strategy. But, there are also free-plus-shipping offers, other tripwires (which are low-ticket front-end offers usually from \$1 to \$37) and other lead magnets such as free ebooks, checklists, cheat sheets and so on.

When you sit down to think about how you can acquire customers, you have to envision their pain points and how you can go about adding some value to their lives. You might lose some money on the front-end. But, if you have a proper sales funnel, you can maximise the average cart value with up-sells and one-time-offers that will make your ad spend profitable.

## 2. Ascension

The second way that Abraham says that you can grow your business is through ascension. How can you get your customers to ascend a value ladder? What email sequences can you plan that will move the customer up the progression of value in your business.

With the proper sales funnel and email sequences in place, you can take a customer from your low-ticket, front-end offers up through your value ladder to a high-ticket offer. During each step of the ascension, you have to ensure that you’re adding tremendous amounts of value in the exchange.

If you’re not adding value, then the customer simply won’t ascend and you won’t grow your business (fast or slow). That’s what it takes. Be sure that you’re adding loads of value during each step of the process if you want your customers to ascend and make more money.

## 3. Frequency

The third way to grow your business is through frequency. How can you get your customers to buy more frequently? That’s the big question. Can you do this through a continuity plan or through new offers or some other monetization? The challenge is doing this without zapping too many of your resources.

Some people struggle to understand how they can grow their business. Others have growing pains. When you grow, you need to scale out your infrastructure. You need more employees and systems in place. Again, the same strategies that took you to seven figures won’t take you beyond.

Take a look at your product or service offering and figure out how you can get your customers to spend more frequently. How can you monetise your customers while still adding more value in the exchange. Don’t just look for ways to extract more money from current customers. Look for ways you can get them to spend more often and monetise that.

### Performance & Growth

Can you grow without losing touch with your core principles?

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I always get asked, “What is the best way to scale my business?” Even by my business coaching clients.

Based on my experience, scaling a business through values will help to achieve sustainable growth, in any industry. Value-based companies should start with understanding their core values and how to scale those values before worrying about how the company itself will grow.

Failure to scale these values causes all sorts of problems when the company begins to scale. Your core message gets lost. Your team’s motivation decreases. Your lack of a strong corporate culture leads to a lack of production.

Losing sight of the values that comprise your company culture makes organisations less successful, efficient and effective. It can even cause companies to fall apart. Don’t undermine or undervalue your company’s values or mission.

Studies have shown the impact that a focus on company values has on operations. According to Deloitte research, mission-driven companies have 30 percent higher levels of innovation and 40 percent higher levels of retention. Companies with happy employees that are aligned with their core values also outperform the competition by 20 percent, Gallup found.

Related: Why You Should Do Things That Won’t Scale In Your Early Start-Up Days

## Set the stage

When new interns start at our firm, we tell them that we do not teach about working in sports. We only teach four things, the four core values of our company: gratitude, empathy, accountability and effective communication. In order to get everyone aligned, we reinforce these values in all three stages of scaling our business, and we use different strategies to instill them.

## Invest in the learning stage

Understand that your new employee is an investment in your company, not a privilege. You are investing in a person’s professional growth and, for those with a values-based business, you also invest in their personal growth.

The learning stage is where you tell stories and share content which will get your team aligned with your core values. Find people who represent the values you aspire to follow and tell their stories. Provide examples of people who succeed with those values. Also, share times of failure that happen when people do not live aligned with the standards that your team is supposed to follow.

## Don’t execute the messenger

The next stage is the execution phase, where our team members mature through those core values and eventually become profitable. The execution stage is where an employee learns to balance the values of a company while also maintaining profitability for the firm.

Having an appropriate compensation package is key at this stage. What matters is that there’s a learning phase that we as employers invest, an execution phase that leads to profitability, and then an equity phase, warrants or even investment from our employees.

## Equity stage: Retain and reward

The equity or partnership stage allows your company to scale and thrive while maintaining a connection to core values. Equity or partnership rewards employees who have shown a commitment to your company and its culture over an extended period of time.

Setting an appropriate timeline to transition from employee to partner is important. People need to know that there is a light at the end of the tunnel.

## SAS shows how to scale

Some of the biggest companies have been able to grow and scale because of their commitment to their culture.

Billionaire Jim Goodnight’s company, SAS, is one of the many companies that operate based on values or a mission. They are committed to a holistic approach, providing core values, support and appreciation to their employees. They see themselves as “authentic, accountable, curious and passionate” and put those values into everything that they do.

If you remain firmly rooted in your core values and principles, you’ll be able to not only bring monetary success to your company, but personal success to yourself, your employees, your community and the people you interact with every day.

Related: The First Rule for Fast Growing Businesses? Scale Yourself

Remember, nobody can succeed without inspiration. Show them how to give back, how to be of service and how to succeed. Empower them with values that will change their personal and professional life.