The answer to this question will be different for everyone, but I want to share with you a way to figure this out and what you can do to improve it.
The value of a new client will determine the decisions you make about pricing your products and services, hiring support staff and how much you will spend on marketing and advertising to attract your ideal client.
Let’s look at an example. Let’s say you sell widgets. These widgets cost you $20 to produce and you sell them for $40. You now have a gross profit of $20 on each widget sold.
Now let’s say a typical client buys one widget a month and stays with your company for 2 years. Each widget makes $20 in profit times 24 months, which equals $480. That means that each new client is worth approximately $480 in profit to your small business.
Now how much money would you spend to attract that client? $10? $50? $100?
Let’s look at this from another angle. If you are spending $1,000 on advertising and marketing and you only attract 2 new clients you are losing money, especially if those new clients don’t buy as many widgets and don’t stay with you quite as long.
Now let’s see what you can do to improve the value of a new client. If you were to raise the price of your widget just 10% to $44 and your costs remained the same, your profit is now $24 per widget, which bumps the value of a new client up to $576 ($24 profit x 12 widgets x 2 years).
And what if your new client bought 14 widgets per year? Now the value of a new client is up to $672 ($24 profit x 14 widgets x 2 years).
And what if your new client stayed with you for 2 1/2 years? Now the value of a new client is $840 ($24 profit x 14 widgets x 2.5 years).
Now how much money would you spend to attract your ideal client? By making improvements in several areas of your business, you can attract a much more profitable client, which in turn allows you to market your small business more consistently across multiple channels and attract even more clients.
I’d love to hear your thoughts on this. Please share them by commenting below.
To your success,