A valuable client contributes to the profit of your business now, will continue to contribute to it in the future, and introduce others like them.
In this blog, we will address how you determine which clients are most valuable to your business and how you find out which ones aren’t
How valuable are your clients?
How profitable are your clients?
Profit is not revenue. At a minimum, you need to know the gross profit of every sale, not just the value of the order. It would be better to include the cost-of-sale and cost-to-serve as well. These are more difficult to calculate but are possible with a CRM system.
How long will clients keep delivering profits?
Loyalty is how long clients will keep contributing profits. If you do this right, you can even give this a value (net present value). But it is tricky. Historical data from your CRM can help, as well as rough rules of thumb, such as older clients being more loyal than new clients.
How valuable are client referrals
Clients refer other businesses like them. So these businesses should be equally happy with what you offer. That means they are easier to convert, stay longer, and spend more than people who don’t know you. And they are for free.
Your CRM should track which clients referred opportunities to you, whether these were closed, and the profit level achieved.
How do you calculate Lifetime Value?
Profitability, loyalty, and referral value are scored by ranking clients and dividing them into equal groups, e.g., Most profitable down to least profitable. Scores are applied to each group and combined (with weighting) to create a Lifetime Value Score.
Scoring clients in this way is the most reliable way to understand the value of clients and will change your thinking about them and how to generate more profit in your business.
For example, clients who deliver the greatest revenue (cash flow) may demand prices that provide the least gross profit, continually shop around for the cheapest deal, and never refer business to you. They are also likely to have much higher cost-of-sale and cost-to-serve.
How can you use Client Lifetime Value?
If you want to know how to use your CRM to calculate and use Client Lifetime Value to grow your business, please complete this form to receive further information.
