What’s the Lifetime Value of Your Average Client?

One of the questions I’ve been asking myself over the last three months has been, “How much should I spend on marketing and advertising on a per client basis?”  Essentially, I’m trying to figure out how much is too much so I’m not wasting money and eroding my net income.  Determining this value could also be useful when planning my monthly clothing expense budget.

I just finished a great book called, Buying Customers: Revolutionary new rules for you to get more customers with far less money, by Brad Sugars.  In his book, Sugars discusses the importance of looking at marketing and lead generation as an investment rather than an expense.  Why is that?

Well … when you calculate the Lifetime Value of your average client or customer, you might realize that you can spend more than you thought to attract new clients or “assets” to your business.

This week I took the time to determine the Lifetime Value of my average client as well as my highest spending clients.  Here’s what I discovered:

First, I wanted to look at the value of an average client in 2016.  To calculate this, I took my annual sales divided by the number of active members and came up with $1,675.  Our clients on Pure Barre Platinum (12-month contract) pay $139 x 12 months = $1,668, so I find it valuable to know that an average client would spend about $140 each month on classes and clothing.

Next, I ran a “Big Spenders” report in MindBody, which is the client management software we use at my studios, to determine the value of my top clients in 2016.  My top 100 clients, or the top spending 100 clients, had an average annual value of $2,545.  My top 10 clients, or the 10 clients who spent the most at my studios, had an average annual value of $4,097!  This means my very best clients were spending about $341 each month or 144% more than my average client!

But these are just annual average values and my typical client stays on for about 3 years.  This number was a little tricky to determine, but I did the best I could looking at my top 20 clients and how long they’d been taking class.  Then I did a simple average to come up with the 3 years.

Based on this information, the Lifetime Value of my average client is $5,025 and the Lifetime Value of my top clients is $12,291.  Or is it?  Each client usually refers at least one friend, so the Lifetime Value of each client at my studios is between $10,050 and $24,582!

What does this mean?  Well, if we don’t get a client to purchase a package beyond our $99 Intro Month, we’ve lost not the value of the next package, but potentially $25,000 or more depending on how many friends that client refers.  Yikes!

It also means that I now have a baseline from which to determine my marketing and advertising expenditures to attract new clients.  If the average client has a Lifetime Value of $10,050, then I can probably spend a little more money than what I have been to acquire new clients.  Specifically, I want to host more events at the studios to promote our Pure Barre community and now I know that spending that extra money makes sense, especially if I can attract more people like my top clients.

Cue the G.I. Joe public service announcement!

I’ve received several inquiries over the last few weeks about what makeup and skincare products I use.  I’ll share my skincare routine with you in my next post.

I’ve also made significant progress writing my book on how to run a successful fitness studio—it’s almost done and I’ve started having discussions about publishing.  This means I’ll be able to increase my posts pretty soon.  Good times!

Until then, stay on your toes!

Buying Customers: Revolutionary new rules for you to get more customers with far less money, Brad Sugars

 

How did I get here?

I’m here in Houston, Texas for the ActionCOACH Business Excellence Forum (BEF).  And I’m up for an award—Best Service Based Business with over 10 people.  Yeah, I know.  I forgot to mention that.

Honestly, I was just super excited to attend and have my business coach, Mary Ann, invite me to go with her.  All I cared about was listening to some great speakers and leaving feeling inspired to keep making positive changes in my business.  Maybe meet some great people.  Get my picture taken with the founder of ActionCOACH, Brad Sugars (he’s so tall!).  And of course, … eat at my favorite Mexican restaurant, El Tiempo.  Maybe more than once.

I didn’t really tell that many people about the award because I didn’t get what a big deal it was.  Oops.  So, as I’m looking out over the crowd of 500+ business coaches and their top-achieving clients all dressed up in black tie garb, ACCEPTING MY AWARD (which apparently over 400 businesses applied for) all I could think about was: How did I get here?

 What I mean is, what was the course of events that led me to get to this podium and accept an award that was judged and presented by the great grandson of Winston Churchill?  Oh yeah, that guy was pretty cool.  Got to talk to him after.  And as he was saying what I’m guessing are some great things about Pure Barre Winston-Salem and Pure Barre Clemmons—I don’t really know, because I was literally freaking out thinking, um, what in the world am I going to say at the podium when he’s done talking?  Yep.  We all had to give our “thank you” speech and being the moron that I am, I had nada.  Words came out of my mouth.  I’m pretty sure I thanked Mary Ann, mentioned that I wouldn’t be here without her help.  Oh, and in my stellar wrap up, told the whole room of brilliant business minds that I was thrilled to accept this award from the great grandson of Winston Churchill because I own 2 English Bulldogs.  Nice tie in.  Are you kidding??!!  Ugh.  But seriously, how the heck did I get here?

Financial Planner & Advisor, Josh Donley, Mosaic Capital

See, the reason I hired Mary Ann to coach me was because I wanted to sell my businesses.  Back in May, I had had enough.  I was having some cash flow issues and every month was super stressful to ensure that I had enough money to pay my employees, rent and our other expenses.  It literally got down to pennies making sure my accounts weren’t overdrawn.

It seemed like I was just spinning my wheels working to pay American Express.  I wasn’t having any fun.  If that was what business ownership was all about, that was not what I had signed up for.  And I was ready to exit.

I was talking everything through with Josh and he said, “This just isn’t worth it.  You don’t need all this stress.  You could get a job anywhere, make more money and be less stressed.  Let’s exit and figure out a way for you to sell.”  So, he called a Winston-Salem business broker, Ron Buck.

Winston-Salem Business Broker, Ron Buck, Murphy Business & Financial Corporation

For those of you who aren’t aware, a business broker is basically like a real estate agent for businesses.  You hire one to help you find a buyer or you can hire a broker to help you find the best business opportunity.  The broker keeps everything moving and is an intermediary between the seller and the buyer making sure the business valuation makes sense for both parties.

When Josh talked to Ron, he didn’t use my name or my business name.  Ron was very enthusiastic that he could find a buyer for my business especially because it is a membership-based model with predictable reoccurring revenue and relatively predictable expenses.  He suggested a number, which seemed fair.  But then he said this: “I mean, it just seems like she’s not as profitable as she could be.  If she made a few changes and got the business to a little higher level, I could get $XXX instead of the number I just mentioned.”  Um, I’m not going to tell you what the numbers were, but let’s just say that I wanted the higher one.  Like, really wanted the higher one.  Ron suggested that I talk to this business coach he knew, Mary Ann, who would help me create a plan to exit.

Business Coach, Mary Ann Hauser, ActionCOACH

My first meeting with Mary Ann required a lot of tissues.  I was just spent, exhausted and overwhelmed with all of the “un-fun” things I was having to deal with each day running my businesses.  I remember saying, “I have a f*cking MBA from Wake Forest.  Why can’t I make this work?  Please help.”  We talked a little more and as we reached the end of the meeting, she asked me if I was ready to start coaching and how I would like to pay for her services.  I had no extra money.  I handed her my American Express card and thought: “What do I have to lose?  If I don’t do this, I’ll probably be filing for bankruptcy.  If it works, then sweet!”

That is how I got here.  Josh, Ron, Mary Ann.  I’m so thankful that they led me to be on that podium holding that award.  Now I can sell, sit on the beach and never hear:

“The mic won’t work.” 

“Do we have more batteries?”

“We’re down to 1 case of water.”

“Carolyn, we’re out of soap, paper towels, other paper towels that we use, World’s Best Glass Cleaner or fill in the blank _____.”

“You know what you really should do …”

Fade to black.

Just kidding!

Actually, the opposite.  I’m in the process of figuring out how to open more studios and keep growing.  I’ve realized that I’m just not done working on my business.  There are so many things that I need to implement.  We could be even better than where we are now.  Sure, one day I’ll sell.  But not today.

I have a lot of great ideas for future posts from hearing all the amazing speakers at the BEF.  You’ll just have to stay tuned for next week’s topic.

Until then, stay on your toes!