I’ve been wrestling with a very important question and what I’ve discovered may surprise you…AND have a HUGE impact on how you choose to spend your money!
PostcardMania actually LOSES money on every first time order.
Wait. What? If it’s costing us money to get clients, how do we make money?
The trick is in the formula. Return On Investment (ROI) isn’t just what you make on the first sale. Even though we lose money initially, over the average lifetime of a client, we know we are going to make money — a lot of money.
Here’s how to figure out how much a customer is REALLY worth to you:
1. Know the Numbers
Start by gathering this crucial data:
- Average Initial ticket price (how much they spend when they first buy from you)
- Average Reorder ticket price (the average ticket price of a re-order)
- How many times they re-order from you in one year
- How long a customer is retained (5 years, 10 years, etc.)
2. Apply the Formula
Dust off your algebra book. Using the letters above, plug your numbers into this formula: A+D(BxC)=???
For example:
Initial Ticket Price: $500
Reorder Ticket Price: $99
Number of reorders per year: 4
Average # of years a customer is retained: 5 years
The formula will play out like this:
500+5(99×4) — Multiply 99 and 4
500+5(396) — Multiply 5 and 396
500+1980 — Add 500 and 1980
2480 — Finished!
The lifetime value of your average customer is $2480. Now you have to figure out what it costs you to acquire a new customer and what you should be spending. We can help you figure that out too.
Our client, M.E. Wilson, (an insurance agency) has an amazing Lifetime ROI story — see it here.
Best,
Joy
