Today, I’m going to be talking about customer lifetime value and how it’s actually going to make you rich.
See, a lot of people don’t understand the importance of lifetime value, and that’s a shame because when you increase lifetime value, you increase overall, through the long distance, your revenue structure.
It allows for greater and easier cash flow, as well as make it easier to scale your business systematically and without different problems.
Let’s get into it.
One and Done
Some businesses, like the moving industry, for instance. They don’t have a large customer lifetime value.
They’re usually one and done, right?
I moved you once, and I won’t probably move you again for another two, three, up to five years. So, it’s a one and done, right?
Say, attorneys have this problem to a large degree. They have one and done.
A divorce lawyer. Usually you get divorced once, and then maybe 10 years later, if you’re lucky, you might get divorced again.
But in essence, it’s a one and done. It’s not like this recurring thing, which we’re going to get to in a second.
What you gotta do is you got to learn how to create more than one and done.
I move you. My move is a thousand dollars, right?
I get $1,000 from you one time. I might not ever hear from you ever again, so the lifetime value in this case is $1,000, right?
That’s not very good.
Now, let’s take a look at what happens with recurring.
Recurring Lifetime Value
Over here, we got the recurring value, right?
Hypothetically, I got this lifetime value of my customer for $1,000.
Let’s say I had storage, right? Awesome.
Instead of getting a one time one and done thing for a thousand dollars, I’m now going to store your goods for six months.
For six months, I’m going to charge you $300 for each of those months.
What’s 300 x 6?
300 x 6 = $1,800.
My lifetime value has now increased by $800, right?
That’s an 80% improvement over my one and done. Okay?
You see that?
I’m not earning a thousand dollars all in one go, but I am earning $300 for six months.
Now, if I increase that, let’s say 12 months…
That’ll be $3,200. And that’s over a 12 month period.
You could see that a recurring lifetime value is much more valuable than the one and done.
If you are in one of these one and done industries, like moving, you have to figure out what you’re going to do to create recurring income.
This is why a lot of people are going to the subscription models.
News agencies, instead of selling newspapers, are going to monthly memberships.
Selling a membership into your store, like Amazon, they charge prime, right?
Amazon was, before they had Amazon prime, a one and done. Amazon was one and done. I bought a good book. Done. But Amazon technically was one and done.
You’d buy something and you wouldn’t buy something for another period of time.
Although you could make the argument that Amazon was recurring. The argument could be. But for this example, you buy your book, you didn’t buy another book for another year, let’s say.
Okay, awesome. So, that was one and done.
But then, Amazon went to the light side and now is going to become recurring. Because now, they have what’s called Prime membership.
Once a month, they charge a small fee of $10 times however many customers they have, and that will equal the lifetime value of that customer.
That customer might stay with Prime for two years.
10 times 24, that’s $240 per customer.
But how many customers did they get?
If you’re recurring, you could charge less for that one service, but if you charge it over and over and over, it multiplies into a larger income than you’re one and done.
So, if you’re in an industry that’s vertical, is a one and done, you need to figure out what you’re going to do to bring in recurring income, because that’s going to increase the customer lifetime value.
It’s going to increase the cash flow, and it will increase your revenue holdings, and services, and everything, so now you can afford more things.
And it doesn’t have to be high priced.
If you’re a mover, we already have the storage example, but what other things could you apply to your moving industry that would give your customer a greater lifetime value?
You could still be one and done. You could still do your move, get your $1,000, but then put them on some sort of recurring membership that will increase your lifetime value of that customer.
Does this make sense?
Netflix, recurring membership. It’s their lifetime value, right?
HBO, Disney Plus, you know?
FingerHut. Back in the day, you used to be able to get FingerHut at memberships. So, you have to figure out what the recurring is.
Even if it’s a short-term recurring.
Like in this example for storage, in the moving, the storage could be a very short period or window.
But if you own a self-service storage facility, awesome. Then that would increase.
We got a local gas station called Speedway up here, but you can get on their membership program, and you can pay… And it’s free to join the membership program.
But the more you come to their store… The more you come to their service to get gas at Speedway, the more points you earn.
That’s another objective way to get better recurring income.
You don’t even have to charge to increase your customer’s lifetime value.
You could offer free membership, but they earn points.