So you’ve got the front end of your funnel dialed in and made a few bucks…
Digital high fives!
You just killed level one of a successful business!
Next up: Crush level two and rock your life out! #win
What’s level two??!!
Level two is when you determine the importance of your customer lifetime value and keep boosting the numbers up…
The Ultimate Key Performance Indicator is your Customer Lifetime Value (CLV) over time. Think bigger!
The pros are always thinking bigger and more long term. And the metric (key performance indicator) that they use to follow this mentality is their customer lifetime value.
I’m going to show you what customer lifetime value is, why it’s vital for the long-term success of your business and how you can keep pushing that number higher and higher.
What is Customer Lifetime Value?
Your customer lifetime value is a concept that has been around since 1988 and is an especially important number when you are using paid advertising.
Wikipedia shows us all of the different ways CLV is expressed, customer lifetime value (CLV or CLTV), lifetime customer value (LCV), and lifetime value (LTV).
No wonder there’s confusion for us solopreneurs!
Customer lifetime value is simply the amount you earn from each customer that gives you money over their life.
Let’s cut through the fog so you can nail this critical key performance indicator.
Why is the Lifetime Value of a Customer Important?
My wife and I have been working on our business for about 7 years now. In those 7 years, we have people to this very day who are still purchasing our products from when we first launched our business.
We have products that range from 17 dollars up to 247 dollars. When I determine the average spend from customers that have shown up this year and customers that are still with us from the beginning, our customer lifetime value is around the $150 mark.
Every new customer I bring in will ultimately spend an average of $150.
If I’m just spending $30 per customer and making $17 initially, no worry!
As long as I’m not spending close to that $150 to get a new customer, knowing my customer lifetime value gives me an assurance that I will become profitable over time.
Filling my investment quadrant.
Invest in Your Huge Future or Earn a Little Today?
You are investing in future revenue not just trying to make $37 today.
Russell Brunson talks about it in his epic internet marketing book, The Dot Com Secrets.
The rookies celebrate and think they’re totally crushing it just because they’ve made a bunch of sales upfront… They assume that a long email list and zero sales from that email list means nothing to their business.
Sure it’s awesome to get those sales today, won’t argue with that.
Getting your funnel and your first lead generation system going is just the starting point of your successful business.
Determining Your the Value of Each Customer
So what’s the customer lifetime value of someone who purchases a $17, $147, or a $247 product from you 5, 6, 7 years into the future?
This guide was getting too long, I made a separate post showing you how to determine your customer lifetime value, I called it funnel math made easy.
Ready to increase the lifetime earnings of each customer?
A Multi-Million Dollar Business Example
Every business is different but there’s one single customer lifetime value model that you can use as a pattern in creating something that’s more relevant to your niche.
I created this chart quite similar to what Russell Brunson calls the “The Value Ladder” in The Dot Com Secrets book but I have my own take on it as you can see below.
This gives you a clearer customer lifetime value formula that you can use for your business given that you take the essence and replace the steps according to what’s more logical in your particular niche.
You can be in the weight loss niche, or sell skin care products, or be in the yoga, vegan, surfing, dog food niche and find this formula making sense in taking your business to the next level.
Check out the customer value tiers in this chart:
There’s time on the left and value at the bottom.
To make sense out of this chart, we can say that as time passes by, the average revenue you earn from your customer's increases. That’s the customer lifetime value steering your business in the right direction.
The ladder steps that you see resemble your sales over time.
The first step is your initial funnel, like your free eBook with a just pay shipping offer. And as you go up the steps of the ladder, your higher priced products will vary depending on the needs of your audience.
What you to really need to understand about your revenue is that although you have your first two products in your sales funnel at the bottom of the ladder working, that’s not enough to make a lifestyle business.
The real money, the real lifestyle business comes from figuring out the higher steps.
Let’s look at the starting steps in this customer lifetime value model first.
Free Book + Shipping and Product Upsell
They’ve never met you before but they find your free offer through your killer ad and they see they only need to pay shipping to purchase your product. Most people are willing to pay $7 to $17 for what you’re offering.
You’ve got people entering their shipping address and whipping out their credit card info to have this introductory skin cream or physical book shipped and delivered right to their doorstep.
Loss Leader or Maybe Break Even
At this point, you’re probably losing money to maybe profiting a couple of dollars, which is obviously not enough to turn this whole thing into a sustainable business.
But then you give them your upsell, bump things up with your one time offer whether it’s an audiobook, DVD, or a buy 3 for 1 physical product.
The primary goal with your one time offer is to break even on your ad spend, to get customers for free or almost free.
The magic happens as you go deeper into raising the amount you earn from each customer.
How Do You Earn More From Each Customer?
The real long-term money comes by figuring out how to increase your customer lifetime value.
In this example, 100% of your customers begin with the free + shipping book offer. Then maybe 5% will buy your audio book or that one time offer for a physical product.
You enter a new game, you have to figure out what is the next step, determine what to sell next to move from a CLV of 37 to 59, to 89 and upwards.
Moving up the CLV Ladder
The next thing you can offer is something that takes them deeper into your first couple of offers.
My favorite business model for this is selling information!
A home study course that increases your earnings can be a detailed direct learning presentation that will take them deeper into the “how to” journey that your book discusses.
After they have learned a skill and they now want to turn this skill into profit and make some sales out of it.
10% of your customers who are serious about growing their business, going deeper into gardening, becoming a beauty consultant, a yoga teacher…
Your awesome autoresponder campaign is grooming them to purchase your 6-week certification or training or something similar.
Boom, your $1,000 certification product goes out to these customers and you’re really starting to see some progress in your business as your customer lifetime value increases.
Reaching the top of the Earnings Ladder
Next level up, they want to get really serious and multiply the number of customers they’re getting by attending your 3-day live event and learning more from you after the certification course.
You invite them to your $6,000 live event where they can listen to the best of the best-certified people and keynote speakers.
It’s not for everyone who took the certification. It’s for those who are super excited and super serious about taking things to the next level in their business.
The Secret to Making Your Revenue Explode
At the top of this value ladder, you now have the option to offer a one on one coaching or done for you service.
Frank Kern offers a $17k Done-For-You funnel, Digital Marketer has their $30k per year “War Room Mastermind” and Tony Robbins has a $60k product…
It doesn’t really matter if only 1% of your customers join you up to the highest level of your funnel. Because if it’s a $30k worth of coaching or done-for-you product, and you have $$$ rolling in from your certification course and live events, that’s enough to build a lifestyle business.
The goal is to offer your customers the next best, most logical step
Level Up in Your Business As You Increase Customer Lifetime Value
What I showed you are CLV examples that the pros use as a model in creating their multi-million dollar business.
Knowing the power of this key performance indicator will be a game changer for you.
Don’t follow this model exactly, I’m using this chart as an example and you need to figure out what the steps are for your niche, your business, and most importantly for your designed lifestyle.
Ask yourself these important questions:
What do your customers want? Where do they want to go in life?
You may have solved their initial problem, but new stuff comes up as they get closer and closer to their dreams, goals, and aspirations.
If you’re never able to go beyond the front end of your funnel, you’ll never build a top online business.
Breakthrough to the other side, use the back end of your funnel to increase your customer lifetime value and transform your business!
If you have any questions on how to start or how to get to the next step in your business, hit me up in the comment below.