Day 22 — How to Calculate Lifetime Value (LTV)

This is a LIVE case study where I am documenting my journey to becoming a highly paid marketing consultant by blogging everyday for 50 consecutive days. It’s called “50 Days to Freedom: My Journey to 5 Figures in 50 Days“. At the end of the post, you will find links to all the previous posts.

Today’s post is going to be a bit different.

Typically, I share a lesson before getting into the case study, however today, it makes sense to have the lesson tied in with the case study.

When you calculate how much a customer is worth, you can then determine how much money you can spend to acquire a customer.

This post is about how to calculate the LTV, and why it is important. I will not discuss how to improve it, but every busienss owner should be striving to constantly be increasing the LTV, and this post should prove why.

Day #22 Breakdown

Today, I had 2 sales calls scheduled. One had a family emergency, and had to re-schedule. The other, was a gym owner out of Chicago is doing very well with him gym.

In fact, he has a company doing his Facebook advertising quite successfully. They run a campaign once every 3 months, and he’d like to run ads between these campaigns.

During our conversation, we uncovered some areas in his business that can be improved & optimized. He has a database of 600+ leads who have expressed interest, but have not become members. We are going to execute an email campaign to convert a portion of those leads into new members.

When talking with these gym owners, it is extremely important to determine the LTV of each member.

This is a crucial number to calculate in business when it comes to advertising (online or offline). I find small business owners have no clue what their LTV is, or how to calculate it.

Below is a simple calculation for determining LTV…

(Average Transaction Amount) X (Number of Yearly Transactions) X (Average Retention Rate in Years)

This gym’s monthly membership is priced between \$157 — \$207 per month depending on the package they choose. On average, his members stick around for 12 months.

So using the formula above, we have…

\$157 x 12 months x 1 Year = \$1,884

\$207 x 12 months x 1 Year = \$2,484.

A range, depending on the package they choose, between \$1,884 — \$2,484.

For this example, we’ll use the average of the above numbers, which is: \$2,184.

If I can help convert 6 (1% — which is pretty low) new members per month from his current database, that equates to an additional \$13,104 to this gym owner. This is optimizing his current assets, without spending a penny on advertising.

This is one of the areas most business owners neglect, and an area I love helping as it’s like finding money in their business.

Calculating the LTV is an important number to know as a consultant/service provider, as it helps price your services. If you can explain the above to a business owners, and prove you can drive results, you’re basically selling them money at a discount.

If I can prove to this gym owner that the above numbers are achievable, would my fee of \$1,500 be worth it?

In a sense, he pays me \$1,500 and I return him \$13,104 — a 773.6% Return On Investment.

There is no sane business owner who would turn that down, however, it’s how you explain & position it, that determines if you can close the deal.

Day #22 Numbers

Emails Sent: 100

Sales Calls: 1

Committed Trial Offers: 1

Action Plans/Proposals Sent Out: 0

Revenue Generated: \$0

If you’re getting value from any of these posts, please share with a friend.