Knowing This Business Metric Will Change The Way You Do Everything

Pay attention to this business metric, and it may not only change your focus, but your long-term bottom line too.

There are so many business metrics accessible to entrepreneurs and CEOs today. Never before have we had this amount of data and tracking capabilities available. It is empowering business to operate more efficiently and effectively. Yet, some of these measurements are more valuable than others.

Common Business Metrics

Some of the most common numbers been focused on by businesses today include:

  • Website traffic
  • Time on page
  • Page views
  • Social media likes and follows
  • Click-through rates
  • Conversion rates
  • Cost per lead
  • Profit margins
  • Sales

The Missing Metric

Knowing the above figures can be extremely valuable. If you aren’t watching these numbers, you have no idea how you are really doing. You don’t know if you are investing your time, capital, and team in the right actions or not. It’s vital. Yet, some of these metrics can be misleading too. Focus too much on the wrong ones, and you have actually find yourself far further from your real goals. For example; you may want more social media followers and want to watch those numbers. Yet, those numbers alone can be deceiving. You don’t want more of those at the cost of killing conversions and actual sales and profits.

One of the most important, but most commonly overlooked figures is Lifetime Customer Value (LCV). This is one of the metrics which separates the most successful businesses which survive long term, and those which crash and burn quickly. Many short-term thinking CEOs and entrepreneurs are simply focused on generating cash this week or month. That can be necessary. Yet, it is generally not a sustainable mindset.

A New Perspective

Knowing and prioritizing focus on your lifetime customer value can give you a whole new perspective. First, it opens your eyes to how much value each customer has. If you can keep them long-term, they can deliver substantial contributions to revenues. This repeat and referral business is typically far less expensive than acquiring new customers. That can dramatically increase your bottom line, exponentially. Ultimately, this can make all the difference in business longevity.

Once this is understood and appreciated, it will likely change many things within your operations. It may change how you value leads and clients, how you treat them, the level of value you want to pack in, the creation of systems to increase customer retention, the range of products and services you develop, what you are willing to spend or give to acquire new customers, and perhaps even your branding.

Calculating Your LCV

How do you know how much your Lifetime Customer Value is?

LCV is the gross profit a customer can bring over the lifetime of your business. While that may not be very great depending on current practices, you want to look at the maximum potential, if things are done right. This includes income from initial sales, upsells, repeat business, a lifetime of referrals, and even legacy business. Then minus the costs of acquiring, servicing and retaining those customers.

Let’s take a well-rounded real estate business as an example. Customers may enter as renters. Then buy a starter home, move up as their family grows, learn to invest and buy multiple properties, and then eventually downsize their personal residence. During these years they can provide many referrals to other lifelong customers. Even after they pass on, the next generation can become lifelong customers too. How much more revenue and profit is that, compared to simply focusing on one transaction, and forgetting them as you chase new clients each month?

Summary

Tracking business performance has become easier than ever before in history. There are many metrics to watch and work on. Lifetime customer value may be one of the most important. Figure out what it is for your business. Keep recalculating as you take action to improve it, and consider the impact on this metric when making other moves and changes.

 

About the Author

Kent Clothier is President and CEO of Real Estate Worldwide (REWW), a multi-faceted real estate education company with headquarters in Scottsdale, Arizona, San Diego, California, and Boca Raton, Florida.

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Mr. Clothier is an expert in real estate investing. As such his experiences are not necessarily typical to the standard real estate investor and whose results may vary. The successes shared on this site are not considered typical. Most individuals who order the educational materials and systems probably do not follow any of the techniques or strategies and consequently make little to no money due to their inaction. The company is in the process of determining the typical success of its clients. Stories shared herein are for example purpose only and should not be construed as "guarantees" of success. Results will vary based on background, education, and experience and actions taken.