There’s a story of an old grocery store proprietor who made a calculation about the lifetime value of his customers.
He estimated that people shopped at his store once a week and on average spent about $100 each time they came in.
If you take $100 a week, and multiply it by 52 weeks, you’re at $5,200.
This store proprietor estimated that he kept a customer for ~10 years.
So over a ten year period, they would spent $52,000 with his store.
Think about it: $52,000 from each customer over a ten year period.
This isn’t in a B2B space. This is a grocery store.
You could make the same calculation for a yoga studio, an oil change services center, mechanic, tenants in an apartment, or any number of other markets.
You could make the same in B2B markets as well. Think about the number of oil changes and tires it takes to keep a fleet of trucks running. Or how much it costs to print t-shirts or uniforms for your store.
Now the grocery store proprietor could’ve measured the individual response from his most recent ad campaign. And he likely also measured the increase in sales for the ribeye steaks he put on special.
But the real metric that matters is the lifetime value.
We tend to look at marketing as an in-and-out engagement. What is our CPC? What is our CPA? How about our CPM? Are we breaking even on our campaigns? And those are useful metrics. We should focus on them.
But we must also realize that the immediate transaction only tells a tiny part of the story. Those metrics are the tip of the proverbial iceberg. Customer lifetime value is often built in ways that aren’t immediately trackable.
One of the best ways to determine if you’re marketing and sales is working properly is to look at the overall growth of the product or business line. Are you bringing in more revenue year over year? How much does a customer spend over his or her lifetime with you?
If you wonder why so many stores now offer membership cards, it’s to help track these metrics.
I hope you break even on every ad campaign you launch. But don’t think a campaign isn’t profitable because you can’t prove value now.
Instead, look at the life of each customer. This won’t come from Google Analytics.
But it’s the metric that matters in the long run.
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