How to Increase the Lifetime Value of your Customers

by Chaun Soh

Postcard marketing gives you one of the most cost-effective ways to market to customers and prospects.

By choosing your list carefully and keeping it up to date, you can be very precise in the way you target prospects and make business-building offers to current clients.

Postcard marketing also gives you a clear, simple, accurate way to measure response, work out the cost of attracting new customers and estimating their ‘lifetime value’.

This is what they spend per average order times the number of sales a year times the number of years they buy from you.

Once you know this, you can work out how much to spend on postcard marketing to attract them to your business.

Say you own a restaurant and your average customer spends $30 each visit — of which $20 is gross profit. If they return 10 times a year and do so for 4 years, such a customer is worth $20 x 10 x 4 = $800 in gross profit.

So new customer will bring you $800 in gross profit over the next 4 years, and not just the nominal $20 on their first transaction! Strictly speaking, you could spend as much as $799 on winning a new customer, and you would still be ahead by $1!

As an example, it costs you $1200 to get 1000 postcards designed, printed and posted. You expect to get 2% purchase rate, ie, 20 new customers to your restaurant. Here’s the math to see if it’s worthwhile:

Cost of postcard campaign: $1200
New customers: 20
Average cost to gain each customer: $60

Average gross profit per customer: $20
Less cost of sale per customer: $60
Gives you LOSS for your first sale of $40

That’s why it’s important to consider customers from a lifetime point of view; the key to success is repeat business. Keep customers coming back and you’ll be on track for the profit power you want.

But when you apply the lifetime value principle, the profitability is there — and plenty of it!

By calculating each customer’s spend x number of purchases per year x number of years expected to buy, you get:

Average gross profit per customer: $20
Multiply by number of sales per year: 10 x $20 = $200
Multiply by number of years as a customer: 4 x 200 = $800
Less cost of sale per customer: $60
Gives you profit per customer over the course of a 4-year period: $740 — substantial!