What Business Are You inP

Most businesspeople define their business by what they sell, like a fruit shop, an accounting service, and so on.

Change from a product or service point of view to a marketing point of view and you'll realize you're now in the profit-making business. And making a profit is as simple as spending less than you earn. In other words, you've got to buy customers, with your sales and marketing, for less than they spend with you, either by cutting the cost of buying a customer, or by extending the amount people will spend with you over their lifetimes of buying.

It's fairly basic mathematics but it isn't taught in too many business schools.

Lifetime Value

Think about this for a moment. How much are you going to spend in your lifetime on something as simple as toilet paper? Thousands of dollars?

So let me ask you this. How much will average customers in your business spend with you over their lifetimes?

Let me give you an example. In my dog food business, average people will spend $800 a year on their dogs, and the average dog lives for 10 years. So, assuming a customer stays with me for only half of that time, 5 years, then she is worth $4000 to me.

Then, what if my customers all refer to me two new customers in their first year. Now they're worth three times $4000: This equals $12,000.

What if they also then referred another two every year, and every referral sent us another two customers a year. How much are they worth to me now? Hundreds of thousands? Or, more to the point, how much are your customers worth to you over their lifetimes of buying from you?

You must establish this long-term view of their value before you can appreciate how important it is to develop a relationship with customers and to ensure that everything is done to keep them for as long as possible. 22