Thursday Jul 21, 2022

Lifetime value and why you are leaving money on the table EP-034

Blake Beus  0:00  
Let's get let's get to lifetime value. That's what we talked about today. Right? Lifetime value. Yeah. So why is that important?

Greg Marshall  0:06  
Yeah. So I think lifetime number one lifetime value is, you know, they call it LTV, right. In marketing, you have to abbreviate everything, right. So, LTV lifetime value. And the reason why lifetime value of a customer is super important is because it allows you to understand how aggressive you can get with your marketing and advertising, especially if you're doing paid in any way, whether that's paid ads, influencer, paid marketing, high levels of SEO paying for an SEO team, you can figure out how much you can afford to spend to acquire a customer. And so lifetime value is probably the most important metric in a business, in my opinion. Because if you don't kind of constantly work at trying to increase it, you're just not going to be able to get the business growth results that you want. And you're not gonna be able to have the profits, and you most likely will miss opportunities, if you have good lifetime value of a customer, right? And that's one thing that I find is, if you don't like for example, let's say your lifetime value customer is way higher than you actually think it is. And you might not be aggressive enough to acquire those customers, simply because you haven't figured out what your lifetime value is.

Blake Beus  1:25  
Yeah, yeah. So I mean, one of the things every time I talked about lifetime value, most people understand what the metric is. But oftentimes, they don't know what the metric means. And I think you summarized it really well. Most of the time. When I talk with people about it, they they know well, yeah, that's how much money I make over the life of the you know, the customer. That's that's what the metric is. But what it means is what you were saying how aggressive you can get with your marketing and tech marketing tactics and things because once you know that, then you can scoop up more of the market share exactly. But if you don't know what that actually is, then you can get aggressive. It's, it's almost like most people don't think a whole lot about it other than, hey, that's profit, yes. And not think about it from a standpoint of acquiring new customers or finding out finding new people to help or whatever, right?

Greg Marshall  2:14  
That's actually a good point. Because I think you're right, in the sense that people are not thinking about it, they like they off and they're just like, Yeah, my lifetime value may be XYZ, right? But they're not, they're not realizing that they could use that like data point, to actually take more action or to drive growth in their business. And I think typically, where the customer gets kind of caught up is like, and I've run into this to lifetime value is again, theory, that's great if they're worth $10,000. But I can't spend $9,000 Get them, right, because it's 10,000 over their lifetime, not immediately, right? And so you have to almost balance the two between lifetime value, and then cash flow turnaround. So like, how much cash do you get from the right away? Right? And then how fast can you essentially survive and reach that lifetime value?

Blake Beus  3:06  
Right. And I feel like when we start talking about that, that it's very easy for people to envision that from a single customer standpoint. But they forget that you're signing up customer, whatever the product is, or service is, you're signing up more than one customer at a time. Yep. Unless you're one of those companies that only works with one customer time, which is very rare. So you're signing up multiple customers at a time. And so as you sign up people, you can start seeing the cashflow come in from people you signed up maybe a month ago or whatever. But then you start seeing the cash flow coming in from the people you signed up a year ago on their secondary purchase or their upsell or their, their renewal of the membership or subscription or whatever. And, and so you end up having, I don't know I think of it like stacks, right? You're you're stacking on top of each other. And you have this this this life cycle where you just kind of keep going up the hill, even though it's a little bit up and down at first. If you do your if you if you have an eye on the lifetime value can keep growing, growing, growing. And then you can get to the point where well yeah, I can spend $9,000 to get a 10,000 back customer. Because I know actually because I've been working on my lifetime value. This no longer $10,000 It's $50,000 for my lifetime value. But that's realized over five years instead of, you know, lifetime over to what I was calculating before. And so now it makes perfect sense to spend $9,000 to get that $10,000 Customer whatever. Yep. Right?

Greg Marshall  4:43  
Well, and I think too, you should aim on. So here's like some actual strategies you can use to try to figure it out. And then what you should do so if you just started out, it's a little bit tougher, but look at maybe a competitor's business, and see what their lifetime All right, what are they most likely getting? Is it? Do they stick around for six months? 12 months, two years, right? What's their average order value and do your research that way, if you're just starting, if you've been in business for at least a year or more, take a look at all of your customers. And then it takes time, but just figure out how long people are staying around. Or how many purchases are they making right? Over a 12 month or 24 month period, right, and then come up with a number that is average, right? Because you're gonna have some people that are like, really like, their lifetime value is massive, like I have some clients that their lives. But if I based everything off that, that may be skewing the numbers in the wrong direction. And same with people that are maybe shorter, so take the average of what all of your customers are doing, then once you get that lifetime value, average, then what you want to do is some ways to increase it, think about how can I get them to purchase more, right, so you can actually have them buy more at the point of purchase, you can increase your prices, you can try to get a like a subscription model where they're paying each month, you can come up with unique product offerings for that audience, to get them to buy more, there's a bunch of different ways that you can use to increase the lifetime value your customer which you should be obsessively thinking about. How do I get them to stay on longer, pay more, buy faster, and get more offerings for me?

Blake Beus  6:30  
Right, right. And, and one of one of my favorite tactics is great, what's the next logical step for for my customers to get. And it's like, starting a business is complicated. Coming up with a product line is complicated, or package of services or something like that. And if you're just barely starting out, or even if you've been in business for a few years, you you're not where you could be. And you can only really focus on a small set of things at once. But once you kind of get that down, you can start saying okay, now I've I've service to these clients. Yep. What's the next logical step that I couldn't do two years ago, but maybe I have the cash flow, or the bandwidth or the staff to be able to execute on right and you see this all the time with the guru model is quite easy right to, to see this, you'll see them launch some sort of a product or a service. And then the next logical step might be group coaching, or consulting. Right, the next large logical step after that might be a retreat that's like a $10,000 to go to, you can escalate pretty quick. But you don't have to have all those pieces together. At first. Yep. And you don't have to make sure the next logical step works for all of your customers. Because there's, there's going to be some that will will need that next logical step. And some that won't. Yeah. But you see this all the time. Another way I've seen people and businesses improve their lifetime value is just maybe simplifying the process. So one of my favorite examples is Amazon, they kind of pioneered the two day shipping. Yep, and the Amazon Prime, where you could pay one fee and get free two day shipping one fee once a year and get free two day shipping. Well, that kind of locks you in it makes it so much easier for you to keep buying more from them. Because you pay this one fee. And it's like, well, I'll just get it on prime. And I'll just I'll just get on with prime, you almost feel obligated to use those because you pay Yes, you pay for you pay for it up front. But it's it's insanely convenient. And I think that single innovation right there has allowed Amazon to to grow way bigger than than many other companies.

Greg Marshall  8:40  
Well, and another strategy you could use for lifetime values, you can ask yourself the question, why is my lifetime value of a customer not higher? Right. And once you come up with some of the reasons why you can start to fix that, and plug that hole like that's one thing I like to use when coming up with just ad campaigns and landing page ideas is what is preventing the like think negatively Oh, yeah. Why would someone say no to this offer? Why would someone not stick around? Why would someone not keep buying more and more from me, that typically will help give you the answers. Yeah, what you can fix, essentially, to get better results. And this is like, like, I tell my clients and this is my own personal belief as well. Optimization never ends, right? Like you're just constantly. There is no end. Yeah, it's it's not like okay, I've arrived, I have my perfect lifetime. Trust me, Jeff Bezos and his crew. They're still thinking about how to increase the lifetime value of customers. And they're very rare, right? And so this is part of the the journey and the game is to continuously figure out how can I provide more value so that the customer sticks around more often? buys more often buys more things, and refers their friends and family to us? Yeah,

Blake Beus  9:59  
yeah. It's, it's a unique thing. And I mean, you might be thinking about, you know, it's easy to kind of pick them. I like picking on boring businesses, right? Because there's so there's such an underserved model. And I say boring lightly is title companies is one we pick on quite a bit here because title companies provide a valuable service, but you don't see a whole lot of marketing campaigns aimed at getting title company clients for marketing or whatever. It's this kind of boring model. But it's, it's an interesting one. But there's so many things that they can do to improve increase that they could say, Okay, well, we provide the service. What if we found customers or taught workshops to people on how to buy their second property as a rental or something like that, right, so now you're turning a customer that typically buys maybe once or twice in their life buys a home, now you might find a company customer that's going to buy maybe five or six times in their lifetime, because you've showed them how, how simple the rental purchasing process can be. And you are the clear company for providing the title services, sales purchases, and things along those lines. So there's so many ways to make this happen. And it's so easy to just forget about it or not think about it, because you're focused on delivering for your clients or, or the next product or whatever. And, and taking a step back and actually looking at this stuff is is super, super important. Well, I

Greg Marshall  11:26  
think the next question, typically, I think people will have as well, what if I just sell like, you know, I work a lot of T shirt brands, right? Or low cost items? Well, how do I increase my lifetime value of a customer? If it's just like I have a T shirt? Yeah. Or I have a watch or a necklace? Or whatever? And basically, the the simple answer is this, always come up with the next product for those customers, meaning that part never ends, you want to continuously be coming up with new product, new product ideas, because that's actually how you increase your lifetime, lifetime value of a customer versus only trying to increase the price on the front end. Yep, that's like one mistake that I feel like a lot of the, I guess, lower cost items, type businesses, the mistake they make is, they're not making enough new products for their customer to keep purchasing. They're just kind of trying to tweet the price of their one product

Blake Beus  12:28  
or, or the marketing materials, or the ad materials or something.

Greg Marshall  12:32  
And that to me, that's the wrong approach. Because you can only squeeze out so much from like, let's say you go, well, you're selling it for 30 and say 35. Well, why that? Versus if you made 10 new products from that same customer? You can get 300. Right? I mean, absolutely. So which one would you rather have? And I think one you can control better than the other because the market will only pay so much for certain products. Therefore your strategy, I believe should be? Well, that's what they'll pay for certain products. Let me get the more of those products, while reducing my customer acquisition costs.

Blake Beus  13:08  
Yeah. Yeah, it's, it's, you could think of more T shirts, you could think of related products, right? So if you sell T shirts, maybe maybe there's something related acts Yeah, hurts or shorts or sweatbands. Or something else. That's an easy just, well, yeah, add that on. Whatever that is, the other thing you could do is you could have bounced back sales, right. So every time someone buys a product, in 24 hours, you shoot them an email or a text or something saying, Hey, if you buy something else in the next 12 hours, we'll toss it in the box, no extra shipping, just just buy it, because we're already shipping this other thing to you. And so that's an easy way to just bump up your your initial kind of order value. And then lifetime value could have deals for returning customers are saying, Hey, we heard you loved this, this shirt or this, this whatever, we have this new line that's related or buy this as a gift to someone, right? There's got to be someone in your life that would love this also, right? You could do

Greg Marshall  14:07  
subscriptions. So I have one client that sells hair products, they've created a subscription model called a hair products. With jewelry, let's say we use jewelry, you can, if they're buying a watch, come up with a different version of that same lens or offer them more watches more often than more necklaces or rings. Or the point is you have to continuously get you need to create new things for your customer to buy. And that's how you really increase the lifetime value of your customer. Especially if you're in kind of like that product business. service based businesses can be you can make the argument they could be a little bit easier for lifetime value because service typically, people need services built over and over and over again, not just one offs. Yeah, it's almost rare to have service based businesses that are like I don't They need this one time and never again. Yeah. Right. And so because of that, and service based businesses, really, the simplest way to do it, is to get them on a membership or subscription model. Yeah. Right, and then just retain them as long as possible. And that's really how you can increase your lifetime value. And that

Blake Beus  15:18  
model works really well. Yeah, I'm glad you use the word retain, because I was gonna bring up retainers for like, you know, legal fees, or whatever you see this all the time with, with big companies, they have a legal firm on retainer. And what that means is they pay them money every month to handle a handful of things. And if something bumped comes up, they kind of have this buffer zone of basically prepaid legal hours, that they can say, hey, come take come square up this thing for us or whatever. And and I think that model could very easily be used in so many other industries, but it's just not the norm. And so people don't think about it a whole lot. But for a service based business business, the retainer model could totally work really, really, really well.

Greg Marshall  16:03  
Well, I think, if he spent a lot of your time thinking about how can I get repeat, repeat purchases, then doing the membership subscription type model makes the most sense, because it happens automatically, right? And you don't have to keep chasing them down. Yeah, to get them to buy over and over again, and then your job becomes just make sure that the service is good, and that they really love what's going on, so that they stick around as long

Blake Beus  16:30  
as possible. Yeah, and your your job shifts from constantly trying to find brand new people, to that part's a little bit automated. Yeah, too. And then the next thing is, is basically communicating the value to them, which you and I've talked a lot about, right? Because the retainer model is very similar to how you run your business, essentially, right. And, and we've talked about how you communicate the value to your clients and customers, because sometimes they're an expert in, say, selling T shirts, yep, you're an expert in advertising those things while need the while they need to work together, they don't always understand the value you're providing, because that's not their realm. And so you have to spend time explaining that value. But that's a shift in your business. But But that alone provides a lot of value and makes the retainer worth it

Greg Marshall  17:21  
exactly. And all of my businesses in the past have always worked off of essentially a retainer or more, what you would call E of t model, right? Where people are paying every single month to go ahead and have us provide them services. And to me, that's it's a great way to build a great cash flow, right, predictable cash flow, which helps you to increase your lifetime value of your customers and get more customers because of that constant cash flow coming in. That gives you essentially what it does, it gives you time to let the customer value play out. Yeah, without having it to be like I have to keep selling over and over and over and over again. Hope and then you know, kind of risking it with well, how do I although this customer can be worth a lot in the future, I don't have the cash right now to be as aggressive as I want to be. And so that kind of helps to fill in the gaps there. So I think with lifetime value, the biggest, the biggest thing we should focus on is repeat purchases. I like to tell clients, the money is not made on the first sale, it never is. The money is made on the second sale and every sale after that. And if you have that mindset, you behave differently, then if you need to make a profit on the first sale, because you will spin your wheels, essentially forever. How to make that work, because there's too many variables that you don't control. You can't control how much competition is in the market for ad space. You can't control you know, Seo 100%, right, you can't control influence of marketing 100% There's a lot of things you really cannot throw, at least not 100% control, but you can control how many things you can put in front of his customers in order to get the maximum value.

Blake Beus  19:08  
Yeah, absolutely. Absolutely. So I'm gonna guess if you're listening to this, you might be thinking okay, cool. Well, maybe let's get people on a contract or whatever. And I there's definite pros and cons of say like a long term contract. I mean, legal companies with the legal retainers, that's definitely on a contract. I know businesses that they sign up people for money month after month service, but there's there's no long term contract. It's a it's a basically you pay for the one month and if you want to cancel the next month, you can Yep. What are your thoughts on the pros and cons of that? I'm sure you've seen both sides of it as well.

Greg Marshall  19:45  
Well, I come from my first job, basically was selling contracts. Okay, right. And then I've, over time gone away from that. So there's pros and cons, right? So the pros and contracts Bay See is, it's almost like you're guaranteed not guaranteed, but closer guarantee the money up front whether you do a good job or not, right, right, like the person, they, you know, they could have a billion complaints. But you still get paid. Right? Right. So that's the pro, you will get paid, you'll get your money, nine times out of 10. All right? The cons are, sometimes it can make you lazy. Because you know, you're gonna get their money anyways. And then the cons can also be you have worst customer, like the customer experience is not as good. Oftentimes, yeah. Because they're because there's no incentive to keep them, then it's kind of like, you're just letting it happen. And there's no like real reason for you to make sure the customer is actually happy. Yeah, because sometimes that cost you more money to do that. So it's actually less profitable to make the customer happy. And that position, which logs are wise can hurt you. Because once that contract is done, they're telling all their friends and family not to sign that contract and not go there. So you could be losing customers, or you don't even realize just because of the contract now, on the no contract the pros are, the conversion rates are easier, because people like the opportunity to I can get out anytime. Yeah, some of the cons that can come from that are just people can cancel easier. And you actually have to make sure every single month to keep them Oh, darn right, Oh, shucks, he actually have to do your job. So those are kind of the cons from a business standpoint, the con is the money's not guaranteed, right? Unless you do a good job. And so there, there are pros and cons, I tend to like the no contract, just because I do want to at least hold myself accountable for like, trying to do a good job, right customer versus if I get you in a contract. And it's just like, Well, I'm gonna get your money no matter what. And there's no incentive for me. And if you try to cancel, you can't because you're gonna kind of Yeah, and it just, it just feels icky, or

Blake Beus  22:06  
that way. Yeah, I've noticed. I mean, let me put it this way, there's clearly a time and a place for a contract, you get that. Typically, I think that works a whole lot better for larger businesses with a very complicated thing. And both sides need to deliver and hold true to something. But for smaller businesses, almost always, I feel like the the the month to month is just a simpler transaction all the way around simpler sales. Like you said, you don't have to put as much effort into trying to sell it. You don't have to go over all this legal, whatever, it is just a Let's sign up and try it. It makes the explanation of value easier. And a lot of people don't think about that. But it's so hard sometimes to explain the value of something complicated, like running Facebook and Google Ads ad strategy. When it's so much easier to just show that Yep. Right. And so the no contract allows you to just say, let's just do a quick trial run. Yep, see how this works. I'll show you how I'm working. And then you can take that first month to show them how that works. Yep. And and it's so much easier for that value to be explained. And then and then they can continue to sign up.

Greg Marshall  23:25  
Well, and there is one, there's one card that I actually forgot to mention that, depending on your business strategy and goal can make or break things. So if you basically if your objective is to build a business to sell it, then the big pro to a contract is the people who would buy it. Love that. Yeah, because they're investors, and they typically don't really, they typically don't really care about the customer experience. They just want the money, right? And how much money can I get this in the future? And how many of your customers are locked in? Versus if you're not trying to sell a business doesn't matter. But if you're trying to sell it fit, everything is month to month, they're probably not going to be as interested in your business because it could all leave you know, overnight.

Blake Beus  24:17  
Well, that's a really good point. I've never, none of my businesses have ever started. And what I'm doing right now has never been with the intent to exit or sell in that way. And so that's something I don't think about a whole lot. So I'm glad you brought that up because that that is a completely valid point. Yeah,

Greg Marshall  24:35  
I mean, if you're trying to get a big payout, like let's say, because there are you know, this is like a sport almost where there are people that just want to build this company with the whole intent of selling it to someone, then I highly recommend that you get contracts in your business to make it more attractive. Yeah, just from you know, from just a logical standpoint, and investors gonna want to know What type of money? Am I going to basically guaranteed every month? And how long do I have these customers? And the reason why I know that just from gyms in the past that I've seen been sold. Yeah, that is typically the difference because I've worked at two different types of gyms, ones that are contract based ones that are month to month days. And the contract based ones tend to sell faster at a higher price point. Oh, because they love guaranteed the contract guaranteed that that makes a ton of sense. So yeah, so that's, that's a con if, if you are planning on selling your business at some point and want that option, then you you definitely don't want to have a contract.

Blake Beus  25:36  
Yeah, yeah. super interesting. Interesting. Okay. So I had one last thing I wanted to bring up. And then you know, you, you have more, but this is this is the last thing I wanted to say. One of my favorite ways for subscription models, or like prepaid model or whatever to increase the lifetime order value is something that's easy, but hard at the same time. And I love this strategy, it's, you get on the phone with everyone that has cancelled because they didn't like your product. Yep. And you ask them, Hey, I know we already lost you as a customer. I'm not trying to get you back. But what would have kept you? Yep. And then make those changes? Those are the people that are gonna give you the feedback that's going to pivot your business in the best way possible. And they're insanely uncomfortable conversations. Yeah, well, they'll

Greg Marshall  26:30  
give you honest feedback, honest feedback, right? honest feedback.

Blake Beus  26:36  
And doing that, and implementing those things. I mean, some of them are just going to be jerks, right? Like, whatever. But taking that feedback, and really looking at it, and maybe evaluating it with a business partner, or, you know, a colleague or something like that. And implementing some of those changes will have a huge impact, because they know what you might not be seeing, yeah, would be an improvement. And then you make those improvements and boom, you're you're doing way better. You're you're retaining customers longer. All of that stuff just starts blowing up. Everybody's happy. Everybody's happy, except for that one person.

Greg Marshall  27:12  
But I think in the long term, yeah, having those conversations are always you know, they're always difficult, right? Because no one really wants to say, like, you did a bad job, you, you're this done or whatever. But if it happens, there's two ways to look at it. One, you can completely ignore it, which I don't recommend. Or two, you can take the the insight and make it stronger to make sure it never happens again. And I always like to use sports analogies, right? If you lose, you know, if you lose a game, yeah, because the other team was just draining threes on you all day, oh, then your job is to go, I'm going to lose in every way possible, except by the three. Right? And so you can use that competitive spirit that energy to go, don't get too emotionally attached to the whatever they say, and don't take it too personal. Just take use it to be able to go, if I'm going to lose, it will not be in that fashion. And that's how I like to take feedback from if a customer has had a bad experience or hasn't gotten the results that they want or whatever. That's how I take is how can I make sure that that doesn't happen again? Yeah. And any other way? I will lose, but that way? Yeah. And so with that being said, Do you have anything else to talk about as far as lifetime value? Customer?

Blake Beus  28:31  
No, nope, that's it. As far as contacting me or whatever, just go to Blake beus.com/sm. Three, if you want to go directly to the SM three group, then that's where we do group coaching, coaching, consulting, surrounding social media marketing and digital marketing and all of that good stuff. If you want some one on one time with me, that's a good place to do it. And Greg, how about you,

Greg Marshall  28:53  
Greg Marshall Dotco. If you could go ahead and book a free strategy session. And you know, outside of that, I think, until next time, we'll see you later. All right, bye.

 

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