• NextGen Media

You're a business owner and you haven't heard of LTV?

Life Time Value (LTV) is simply the lifespan value of the customer. Many business owners don't understand the importance of knowing who their LTV customers are, what their retention rate is, and how to maximize and increase their LTV. To best understand this concept would be to give some illustrations.

Take for example a barbershop. On average most barbershops have a retention rate, well over 70%. Meaning although a haircut is say $30, the customers comes at least once a month and stay for on average of 1-2 years minimum. For this example let’s just say 1 year.

LTV = $30 a haircut x 12 haircuts a year = $360 for 1 new client.

Let’s say you get just 20 new clients this month through social media advertising, with a low retention rate of a measly 50%. That's 10 long term clients and 10 one time clients. Which is $30 a haircut x 12 haircuts a year x 10 people = $3600 + $300 for the one time clients for a total profit of $3900 on those 20 people.

Now imagine getting 20-30 new clients EVERY month with the average 70%+ retention rate. Those figures didn’t even include the word of mouth referrals those new clients would give you, it doesn’t even include people who cut their hair multiple times a month, it doesn’t include tips and it doesn’t include barbers who charge more than $30 a haircut (which is at the low spectrum of haircut pricing).

Take for example a restaurant who generates 30 new customers a month through social media advertising. Say they have a retention rate of just 33%, so 10 are monthly returning customers. Average order is $15. 10 Lifetime customers x $15 an order x once a month (12 times a year) = $1800 + $300 (20 one time customers x $15) for a total profit of $2100 on those 30 people.

This doesn’t include customers who come in more than 1 person groups, this doesn’t include customers who come to eat more than once a month, this doesn’t even include customers who were referred by the new clients generated.

This is why social media advertising can be so powerful. Just 20 new clients a month can have SERIOUS ROI as the months and years go on. People see only the short term value in it, they say see the customers as all one-time sales, but that is just not true for many industries. It is a well known fact that history and humans are inclined to make the same decisions. Once you sell someone once, your likelihood of selling them again goes up exponentially. It is not about 1 sale, it is about the LTV of that customer and your business. LTV gives you the real breakdown of how much just one clients value can be and how impactful that really is to your bottom line.

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