One of the most profitable things you’ll ever do for your business is to understand the actual value of your customer. It’s been called the Marginal Net Worth and the Lifetime Value.

What is the current worth of one of your customers or prospects? It’s the total profit of an average customer over the lifetime that they do business with you. That includes all subsequent sales minus advertising/marketing and your fulfillment expenses.

Let’s say the average customer brings you $75 profit on the first sale. They re-purchase 3 more times in a year with an average order amount of $300. On each $300 reorder, you make $150 gross profit. The average life lasts 2 years. So every new customer is worth $975.

You reach the $975 by adding the $75 initial profit to the 3 other purchases each year of $300. Only $150 is profit, so $150 times 3 equals $450. If they do that for 2 straight years, that’s $900 plus the original $75.

Therefore, our average customer is worth $975 in profit. Now lets say it costs you $30 through your advertising/marketing expenses to get them. Then every time you spend $30 you receive $975 back.

At this rate, you’d be crazy not to increase your advertising/marketing and promotional budget to produce as many of these $30-cost customers as you could.

Theoretically, you could spend up to $975 to get that customer because you know they’ll eventually spend $975 and you’ll break-even. But of course, we don’t want to do this.

But you could easily spend 100% of your $75 profit to get that first sale. You’d break even on the first sale and then bring in an additional $900 over the next 2 years.

So why not give away the original $75 service for free and gain as many additional customers as possible. Theoreticlly, if you could double the number of customers by doing this, you’d double your profits over the next 2 years.

If you take the time to learn your numbers and put them to use in your business, you’ll be light-years ahead of your competition. Most of them don’t have any idea what their numbers are.

Until next time – Here’s To Your Success,

Tim