Understanding how to work out the lifetime value (LTV) of your customers is one of the crucial roles of any Fitness Boutique’s marketing department.
Because it reframes the acquisition focus from minimum cost to maximum value.
And it helps to give your future marketing efforts clear direction.
But while working out customer acquisition cost (CAC) has always been fairly straight forward, working out LTV is a little bit more complicated.
Especially when the boutique ‘pay as you train’ model means that customer’s spending activity can be harder to keep track of.
The Equation
Average revenue from customer — cost to service user (instructors hourly wage divided by number of class members + cost of amenities such as towels etc)
Eg. 50 classes in their lifetime (£1,000) — Cost to service user (£30 hourly instructor wage / 15 class members + £20 for towels and changing room products (x50) = £2,200) = LTV of £780
This may sound simple enough, but when the data range of your customers lifespan will vary from 1 week to 5 years, the ‘average number of classes’ figure can result in a very vague LTV figure.
So you’ll get a much better view if you break up LTV into smaller segments.
For example if you look at month 1 of your new customers, the data range of the number of classes attended should be fairly narrow.
Meaning you can generate a fairly accurate average value of your customers in their first month with you, in a similar sort of fashion as you would use Cohort analysis.
So if you plot LTV every month for 6–12 months you’ll get a good picture of the evolution of your customers LTV rather than unhelpful aggregate numbers.
This will generally depend on whether their usage is increasing, because the cost to service your customers is going to stay fixed.
Why is LTV so important?
LTV is of great importance to marketing departments for a number of reasons.
For starters, it puts your CAC into perspective.
You can say “If my LTV is X, I can confidently spend Y without much risk.”
Which is particularly useful for deciding things such as Facebook ad budgets.
It also allows you to see how long it takes for a customer to pay back their acquisition cost.
The longer this is, the more risk there is tied to your fitness boutique.
So it gives your marketing both direction and protection.
Because it’s all well and good knowing that you need to combat churn in the second month of new customers lifespans, but it’s also important to know how much you can spend on tackling the issue.
What Next?
Now that you know how to calculate CLV and apply it to your fitness boutique customers, the next logical step is using it to try and increase your revenue.
As KISSmetrics points out, “by focusing on returning customers — their lifetime value — you are focusing on a strategy that gives your business higher profit margins.” So if you can increase CLV, you can increase your revenue, simple.
In our experience, the best way to improve your CLV is to create a tribe culture where your brand is a crucial pillar in your customers lives.
When your customers are wearing your tote bags, drinking from your water bottles and preaching your messages across social media, you know they’re not going anywhere anytime soon.
How do you go about creating tribe culture? Thankfully we’ve already covered that here.
