What is the lifetime value of a client? And how do I calculate it?

To understand the lifetime value of client we must define the different components as we are dealing with time and value. Time as in retention time period of the customer and value as in the average value in currency. The lifetime value of the client can then defined as per the image below.

LTV = Average Value of Sale x Number of Transactions x Retention Period.

CLV = LTV x Profit Margin

When you understand this formula we can see that the value of one customer is extremely important to your business and protecting that value is off utmost important. One of the components in the formula is retention time period, to maximize the LTV we have to try increase the time period of retaining a customer, the longer the client stays a customer the greater the LTV value will be. Simultaneously we want to maximize the number of transactions the customer produces  within the time period, this too effect the LTV with great effect.

Let’s put his into an example specific to the Microblading industry.

For this explanation we will assume the cost of Microblading today is a R1500, a 6 week Touch up is R750 and an annual fill is R1000.

So potentially we have 3 payments within a year with one client.

LTV = R1083 x 3 x 1

LTV = R3250

CLV = R3250 * 80%

CLV = R2600

So you can see that one client is not just worth the initial procedure cost, we need that customer to maximize their spend to achieve the full spend at your salon.

On a turnover calculation 1 client is worth R3250 per year, now we as digital marketers here at the Digital Ninja need to strategize and campaign to get more of these R3250 client through your business, once we have achieved an plugged a pipeline of customers lining up at your door we are growing the business substantially.

Did you know on an evolving 12 month basis, if you land 1 new client a day with the LTV calculated at R3205, you are running a R1 186 250 business in turnover at best, at worst you just use the initial procedure cost you are running R547 500 business in turnover. These are amazing but simple number broken down to achieve a goal, in order to achieve that goal for your business.

If you want to receive a Free Audit, click HERE and we will most definitely help grow your business guaranteed.

The Digital Ninja

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