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Do The Math

Do-the-mathDo you know the lifetime value of your average client?

It’s a pretty simple calculation.

You take the total amount charged each individual client over the course of your work together. Add together the amounts for all the clients you’ve worked with over a certain period, and then divide by the total number of clients.

There’s nothing to it, but it does require some bookkeeping.

What good would knowing this number do for you?

Well, it puts things into perspective, giving you a sense of how much you should spend in your marketing efforts to attract new clients for one thing.
So, how much is a reasonable amount?

Well, if you know the lifetime value of the average person you work with, it’s fairly easy to make a judgment about that. In our case, we do a lot of speaking. That’s our primary means of generating business. It costs us on average somewhere around $550 to do an “unpaid” speaking engagement … meaning that the organization doesn’t pay a fee or our expenses. That doesn’t count the time involved.

Once we determine how many clients we get from the average speaking engagement and do a little math, the cost works out to be about 8-10% of the average lifetime value. That’s excellent. The message? Keep doing what we’re doing. Anything else we might look at as a marketing tool would have to beat that.

Now, we pay a 15% referral to anyone who sends us someone who becomes a new client. That’s 15% for every month the person stays with us up to a maximum of 6 months.

So, why would we do that if we can generate clients at 8-10%?

Time and effort saved. We get to stay home and enjoy a client brought to us by our circle of influence. So, we’re happy to pay a nice referral fee.

So, is there a percentage that’s too high? No, but here’s a rule of thumb for service providers. The less full your practice, the more willing you should be to pony up to acquire a client. The more full your practice, the less you should be willing to pay. Why? Because you don’t have as much “inventory.” You can probably fill what slots you have open pretty easily. There’s no reason to pay more.

Say the average lifetime value of a client is $2,400. Would it make sense to spend $600 or 25% to attract someone if you’re not full?

Sure, but why would you?

The best way to drive your average cost of attracting a new client down is to be efficient. Use marketing that works, and learn how to consistently convert a high percentage of those who show interest into paying customers.

We help people do that, but this isn’t a sales pitch. I just want folks who don’t have full practices to do the math and get the help they need, whether it’s from us or someone else.

If all it takes is one or two clients to sign up who you wouldn’t have gotten otherwise, paying for any training that helps you get those clients is effectively free. In most cases, it more than pays for itself!

The expense of the training is a no-brainer for most in terms of straight cost/benefit. It’s easy to see that once you know the lifetime value of the average client. How’s that? Because it’s probably a considerably bigger number than you think.

The bottom line: Usually, especially when you’re starting out, it makes all the sense in the world to spend more to do what you have to do to attract and “close” more folks, assuming you can afford it at all.

If you have the money to invest, invest it, because when you aren’t getting the folks you should be getting, you’re spinning your wheels, not living up to your potential, and not making as much money as you should. And that’s no good.

Best wishes,

Meet Denise: Denise Hedges is a Business Development Coach and Speaker Coach for small business owners who want to be more comfortable, confident, and successful with their sales and marketing efforts. She specializes in helping them use speaking as a way to dramatically improve their results!