Client Lifetime Value: What It Is and How to Increase It

Have you heard people talk about Client Lifetime Value and wondered what it is, how to calculate it and how to increase it? Customer Lifetime Value (which is also referred to as Lifetime Value, CLV, LTV or CLTV) is a very important metric to be monitoring in your business, but as a service-based business, you’re likely to think of the people you work with as clients rather than customers, hence me talking about Client Lifetime Value. Keep on reading to find out what Client Lifetime Value is, how to calculate it and how to increase it in your service-based business.

Client Lifetime Value - What It Is and How to Increase It - Pin

This page may include affiliate links, which means that if you choose to make a purchase, I may earn a commission. This commission comes at no additional cost to you. The content of CharelleGriffith.com is for informational and educational purposes and should not be construed as financial advice.

CLIENT LIFETIME VALUE: WHAT IT IS AND HOW TO INCREASE IT

What is client lifetime value and how do you calculate it?

Client Lifetime Value is the total amount of revenue a business can expect from a single client throughout their entire relationship with the business.

To calculate client lifetime you’ll need to know the following information:

Average Client Spend (Per Purchase)
Average Purchase Frequency
Average Client Lifespan

And the formula is:

(Average Client Spend * Average Purchase Frequency ) * Average Client Lifespan

Here’s some examples of how it may look in reality

Example A: A marketing mentor may have an average client spend of £1,500, with clients who on average make one purchase per year, and will work with the photographer for 5 years.

The photographer’s client lifetime value is (£1,500*1)*5 = £7,500

Example B: A VA may have an average client spend of £750, with clients purchasing 12 times per year, and will work with the VA for 3 years.

The VA’s client lifetime value is (£1,000*12)*3 = £36,000

Example C: An accountant may have an average client spend of £300, with clients purchasing 12 times per year, and will work with the accountant for 10 years.

The accountant’s client lifetime value is (£300*12)*12 = £43,200

That’s some examples by now it is time for you to go and work it out for your own business. If you’ve got accounting software or are using a checkout system like Kartra then this should help you to be able to work our your average client spend, average purchase frequency and average client lifespan. It might be in your business that you have clear client segments and feel as if you can’t average out across those segments. If so they you can calculate your client lifetime value for each segment.

Why you should care about client lifetime value (and increasing it)

You might have looked at how to calculate client lifetime value and thought it seems like hard work. And let’s be real it is going to take you doing some digging around your numbers. But I promise you, it is worth it. Here’s why you should care calculating your client lifetime value and then focus on increasing it.

1 – When you know your client lifetime value and maximise it you’ll reduce the pressure on marketing and sales

If you redesign your offer suite so that you can make more money from each client that comes into the business that means you can hit your revenue goals with less individual buyers, and that is good from a marketing and sales perspective. When you maximise client lifetime value, and especially if you maximise what one client is spending within one year, there wil be a less of a need to keep on constantly attracting new clients. This will mean there is a less pressure on constantly making new people aware of your business and being worried about the size of your social media audience, email subscribers etc.

2 – You can feel more confident about what you are investing in marketing and advertising

When you are investing money on marketing or advertising you want to make sure you are getting a good return on investment. If you are selling low-priced services and you are only thinking about that one transaction, then it might be you are having to avoid certain types of marketing or advertising because when you look at the return-on-investment, you can’t justfity it. However, when you think beyond the first transaction and understand what a client can be worth over their lifetime in the business they will change what a good return-on-investment is and what isn’t.

For example looking back at the 3 examples I gave earlier if in Example C the accountant only thought about the first purchase of £300 this could really limit what can be spent on marketing and advertising in order to get a good return on investment. But when looking at the client lifetime value and realising on average once someone starts working with the business they spend £43,200 it totally changes what feels like a fair investment in markeitng and advertising to get that client

3 – It allows you to focus on delivering a high quality service and build strong relationships

When you are thinking about clients as one-off transactions it’s possible to focus on the profit margins of that specific offer and want to get things done in the most efficient, profitable way for the business. However, when you think about clients as being in your business’ world for a while and working with you multiple times it makes even more sense to focus on delivering a high quality service that will get them returning and you have the opportunity to build stronger relationships, which will last over years. Businesses will high client lifetime value aren’t having to constantly think about new client, new client, new client to make money. Instead, they are able to focus on retaining client, retaining client, retaining client, and for many that’s a much more enjoyable way to work.

MAP OUT ADJUSTING YOUR BUSINESS TO MAXIMISE CLIENT LIFETIME VALUE IN A STRATEGY DAY

My Strategy Day are designed specifically to help business owners achieve their business growth for the 12 months ahead. If one of your goals for the 12 months ahead is to maximise client lifetime value then we can map out what needs to change in your offer suite, pricing and marketing to make that happen.

All you have to do is set aside a day, you’ll have me as your planning partner, and I’ll guide you through my signature annual planning framework that guarantees by the end of the end you’ll have a clear roadmap to achieve your goals and be excited for the year ahead.

For all the information and to book a Strategy Day click here.

How to Increase Client Lifetime Value

By now I hope you understand the value of knowing your client lifetime value and can see the benefits of increasing your client lifetime value. There are multiple ways to increase client lifetime value, but below are three ways to get you started.

1 – Increase how much someone spends every time they buy from you

The first way to increase client lifetime value is by focusing on maximising the revenue every time someone buys. In the world of e-commerce, this is described as average basket order or average order value. There are a number of ways you can increase what someone spends with you per order. One option is to have an order bump where you give someone the option to buy something else. Usually the other thing is closely related to what they are buying in hte first instance. Another options is to have incentives for people to spend more. This is often done with coupons. If someone spends £500 they save 10%, but if they spend £750 they save 20%. This types of coupons are encouraging people to spend more as they’ll get a bigger discount. But from a business’ perspective it is increasing how much someone is spending in that one transaction. As with any discounting you’ll want to properly understand your profit margins so you aren’t offering too strong a discount that it negatively impacts the business.

2 – Offer upgrades whilst working with you

Another way to increase client lifetime value is to look for ways to increase what someone spends with you, whilst they are working with you. This is where you want to look for opportunities for people to upgrade their experience. For example, you might have a VIP option, which you share whilst someone is working with and let me know how much they’d additionally need to pay to upgrade to the VIP option. This can especially work well if you are offering a service that is in a group format and the upgrade gives someone the opportunity to work with you one-to-one.

3 – Increase the number of times someone buys from you

We’ve looked at how to increase what someone spends in the first, and technically every, transaction with your business. We’ve looked at how to increase how much someone spends whilst they are working with you. Now it’s time to focus on what happens after they’ve worked with you once.

If you deliver a great service, and I’m sure you do, then a happy client can easily be encouraged to buy again, if there is something logical for them to buy from you. Some service-based businesses are designed for repeat business. For example, if you are social media manager, VA, OBM or copywriter then people will most likely hire you on retainer and essentially buy month after month. But what if your service isn’t designed to be bought month after month? Then you need to look at your offer suite and see how you can build an offer suite that means it makes sense for someone to buy multiple times from your business.

Here are some examples of how it can work in reality.

Example 1: A website designer will usually find it hard to get repeat business. Once someone has a website built, they are unlikely to want a new one for at least a number of years. But by adding in the option of website hosting, this can mean someone then signs up to work with the business indefinitely.

Example 2: A financial coach has a 6-month programme, but once a client finishes their programme they are offered the opportunity to join a money membership.

Example 3 (From my own business) – I specialise in helping service-based business owners grow their business and one of the ways I do this is through annual planning. I help business owners to create an annual plan in one day via Annual Planning Strategy Days (1:1) and Visionary CEO Planning Days (Group). At the end of the day I then give business owners the opportunity to sign up for a 12-month group programme to ensure they implement their plan.

You might decide in your business to focus on one of the three ways to increase client lifetime value (at the time of ordering, whilst working with you, after working with you), or you might go for a combination. In order to increase client lifetime value it is highly likely you’ll need to expand your offer suite. You’ll want to think carefully about what you decide to offer and what you price your new offer at. But an expanded offer suite can easily help you to start doubling or tripling what someone has spent with you.

GROW YOUR SERVICE-BASED BUSINESS ON YOUR TERMS WITH STRATEGIC ONE-TO-ONE MENTORING

Refining your business to maximise client lifetime value requires making changes to offer suite, pricing and marketing. And the right choices are going to be based on your financial and lifestyle goals, current offer suite, ideal client and more.

What is right for your business is going to be unique, which is why I offer one-to-one mentoring where you can get strategic, personalised advice and support.

My one-to-one mentoring will give you the strategy, support and accountability so your goals become a reality. I’ll be by your side every step of the way to help ensure you are thinking strategically, taking intentional action and analysing your business’ performance so you can keep on optimising.

Your business can only grow as much as you do. With my by your side, both you and your business will grow.

For all the information and to apply (I only take on a limited number of 1:1 clients at any time) please click here.

That’s it. You know what client life value is, how to calculate it and how to increase it.

At the beginning I mentioned that client lifetime value is one of the most important metrics in business to monitor and I stand by that. When you know what a client is worth to a business over a lifetime it will change what you feel comfortable investing to acquire the client and it will give you even more reason to focus on giving a high quality experience and building strong relationships. And then when you focus on maximising client lifetime value you’ll be making it easier for your business. You’ll e able to hit the same revenue goals with less people, which means less marketing, less admin etc.

I hope your’ve found this blog post useful. If you have do let me know over on Instagram or LinkedIn.

And if now you are motivated to maximise client lifetime value and want to do it in the most strategic way possible then I’d love to help you. This is what I help clients with inside my one-to-one mentoring. For more information about my one-to-one mentoring, and if you think it’s a good fit you can apply, click here.