To build a sustainable coaching or consulting business you need to know two critical numbers.
Those are 1) your Lifetime Client Value (LTV), and 2) Your Customer Acquisition Cost (CAC)
Your Lifetime Client Value is the amount of revenue – on average – you generate per client, as long as they are working with you. If an average client invests $200/month to work with you, and you retain them for 6 months, you get an LTV of $1200.
Your Customer Acquisition Cost is the amount of money you invested to ‘buy’ that customer with your advertising methods. For example, if you invested $100 into a Facebook Ads campaign, and generated 10 leads and two sales – your CAC equal $50. You invested $50 to purchase each customer.
Following that example, overall you would have invested just $50 to get the client, yet you obtained a $1200 return over a 6 month period.
Without knowing these critical numbers growing your consulting business will become extremely difficult. How will you know your profit margins? How will you know what you can afford to budget for advertising?
And most importantly, when you do know your LTV then you’re able to increase it.
This is the secret to growing a profitable coaching business that nobody tells you.
It’s not about getting more clients all the time.
It’s about generating more money from the clients that already know, like and trust you.
When you actively increase your Lifetime Client Value – and at the same time reduce your CAC, you could quickly have a business worth scaling.
This post is about how to triple your LTV – so that you can easily afford to invest more money into advertising and generate more income without needing new clients.
When you know your real lifetime client value, you’re able to actually see what you can invest.
And when you put systems in place to double, or even triple that value, you can out-bid your competitors’ adverts.
They’ll think you’re crazy for investing so much into buying clients, and then they’ll be scratching their heads in amazement at how you grow so rapidly.
In fact, leading direct-response copywriter and business mentor Trevor Crook, talks about a case study where he helped one of his clients go from breaking even on an advertising campaign to instead generating $43,000 gross profit with his help.
The key? Knowing LTV and ‘exploiting’ that.
Here’s how to maximize that client value:
First, calculate your ‘Baseline’ Lifetime Client Value, using the formula I gave you above (how much you are paid per month, multiplied by number of months a client stays with you on average).
Then, there are 3 ways to maximize your baseline client value:
1. Increase the Retention Value
2. Increase the Upsell Value
3. Increase the Referral Value
Let’s look at each in turn.
How to Increase Retention Value
Increasing retention of your clients is a simple. Not always easy, but simple.
It comes down to two things:
Getting the results they were promised. And second, receiving a great experience as those results were delivered.
Here’s what I mean:
Let’s say you go to a steak house restaurant.
You order a medium-rare juicy steak.
10 minutes later, they bring it. It tastes just as you would expect. Brilliant.
When you arrived at the restaurant, there was litter outside. It looked grubby.
The waiters never smiled when they greeted you. There were no cutlery laid out on the table when you sat.
After your meal the waiters never offered you desert, nor seemed to care if you were satisfied or not.
Overall, you might have received the result you wanted (the steak cooked to your liking), but the experience was poor.
What happens as a result?
Even though you got what you wanted, you likely won’t go back there. That restaurant just destroyed their lifetime client value. All they earn from you is the $50 for that one steak.
Whereas if you become a loyal customer for the next 10 years, buying one meal every two weeks, they could have generated a minimum of $1200 per year from you.
This is what you face with your own clients. Would you rather earn “$50”, or “$1200” from each one?
The lesson is that its imperative to give great results and an experience when you deliver that result.
I think of it like this:
“Provide the results the customer expected, along with an experience they didn’t.” – Justin Devonshire
This will blow them away and they’ll feel certain in your business.
Offer a great service and a strong relationship. Thats why people stay.
So lets assume that with your systems of increasing client results and relationships, your average retention rate goes up from 6 months to 12 months.
That means your Lifetime Client Value just went up from $1200 ($200 x 6) to $2400 ($200 x 12).
Yes, you just doubled the amount of money you earn per client.
But we’re only 1/3 of the way there. Next, let’s increase the client ‘Upsell Value’.
How to Increase Upsell Value
Upsells are a great way to offer your clients additional products or services that can help your clients. Before offering any upsell, ask yourself this offer would either increase the results they’ll get, or will it improve the experience they get whilst getting those results.
There are 2 places to offer upsells for maximum effect.
The first is a ‘Point of Sale’ Upsell (PoS Upsell).
This is the upsell McDonalds made famous. Simply asking “Would you like fries with that?” when you order your meal adds literally millions of dollars to their revenue every year.
You can apply a similar process, very easily.
If you process payments online, you can offer a PoS upsell with a “1-click” mechanism.
If you take money in person, or over the phone, then just have a simple “Do you want fries with that?” script.
For example, “Hey, would you also like to get XXX, which helps you do ZZZZ. Because you’re a new customer we want to reward you with 25% off the price today only...”
Don’t overthink what to add. Just offer something – anything!
One of my clients (who runs a men’s fitness bootcamp) didn’t have anything to offer – so I advised him to simply ask the clients if they’d like to pay-in-full for 3 months instead of one
(No incentive whatsoever, apart from convenience of having no extra payments, I suppose.)
Amazingly, 4/10 clients said, “Sure“.
That meant a huge surge in cashflow every month, which could them be used towards extra advertising.
Whats the risk of testing it in your business today?
The second upsell is what I call a ‘Progress Review’ upsell.
In my fitness facilities, we enrol clients into a group program every 6 weeks. At the end of the period they are each given a bonus ‘Progress Review Consultation’.
This is positioned as an extra value bonus, and it serves as an upsell conversion mechanism. So it increases our sales and upsells. Two birds, one stone.
On that call, have the client describe their great results so far, and map out a future goal for them. If you have a service or product that helps them reach that next goal (which you do, right?) then offer it to them.
We upsell around 40%+ of the 6-week program clients into 6-12 month programs with this method. This gives us a great lifetime client value, which allows us to buy up customers at a fast rate.
The progress review upsell works well because the clients are already hyper-qualified and should love your service and want more.
You may be wondering, how do you quantify the Upsell Value of a client?
It’s pretty simple: lets say that using these systems we offer a $300 upsell product, and 1/5 (20%) of your customers say ‘yes’ to the upsell offer.
This adds $60 to our Lifetime Client Value (one x $300 upsell divided by the 5 clients you needed to make that upsell).
Now, your average Lifetime Value would equal $2460 per customer (we added $60 to the current $2400 LTV).
And finally, we can increase the number of referrals you generate.
Here’s where things get really interesting…
How to Increase Referral Value
Think about this:
Right now your average client is getting great results and experience with you. And they stay with you for an average of 12 months.
Do you think its possible to have that customer refer just ONE more average customer in that 12 month period?
No problem right?
Here’s what’s crazy…
If you do get just one successful referral from that one customer in the 12 months they’re with you, then you’ve just increased the average LTV of the original client by 100%
Because if one $2460-value client brings you one more client, whose also worth $2460 on average….
That brings the Lifetime Client Value to a whopping $4920!
You implemented a few simple systems that resulting in taking your average customer value from just $1200….to $4920.
And you’ve more than TRIPLED your average revenue per client (you’ve actually quadrupled it).
With no new clients (except the referrals that came organically)…
Without increasing your advertising spend…
Without hustling harder…
“The overlooked secret to profits is that 90% of extra potential income is hiding amongst your existing client base” – Justin Devonshire
It really is a lot cheaper to make more money from current customers than from new ones.
What could happen in your business if you implemented these systems today?
Here’s a quick checklist of systems to implement…
Retention Systems to Increase LTV:
1. Results Systems – how are you delivering the intended result for your clients?
2. Tracking results – how do you track and measure the results your customers get?
3. Experience Systems – how do you build more valuable relationships with your customers and community?
4. Tracking – how do you track the effectiveness of your experience-initiatives?
Upsell Systems to Increase LTV:
5. POS Upsells – what can you offer to enhance the customers experience of using the product, or give them faster results in implementing it?
6. What is your POS script? (think, “Do you want fries with that?“)
7. Progress Review Upsell – What do you offer your customers that gives them valuable time with a representative of your company AND offers them more valuable offers?
8. What is your script / template for this presentation?
9. Tracking – how are you tracking your upsell % and total revenue amount?
Referral Systems to Increase LTV:
10. Internal Referrals – What are you doing each week to help your customers refer new people?
11. External Referrals – What are you doing to create JV partnerships with similar providers and create customers-swapping strategies?
12. Tracking – How are you tracking the number of successful referrals each month? Who are your top referrers? What are you doing to reward them and condition that behaviour?
Tracking these key metrics is only the beginning. You also need to keep a close eye on your profit margins, by tracking how much it costs you to serve your clients & deliver the service.
If you can generate a lifetime profit per customer of at least 3-6 times your CAC, you’re looking good on that front.
Alex Charfen, leading business coach to billionaires, is an advocate of knowing your key metrics (and demonstrating transparency with them). In this article he reveals more…