What’s the average client worth to your business?
When you see the answer, you might think about each client differently.
While every client is more important than the money he or she spends, you do have a transactional relationship with your members. They’re not paying you for friendship. Tracking your average client lifetime value (LTV) serves a few of goals:
- It tells you if your service is becoming more valuable over time.
- It puts marketing costs (or “cost of acquisition”) into context.
- It might change your perspective when you’re talking to clients.
To calculate LTV, multiply your average revenue per member per month (ARM) by your length of engagement (LEG). (Click here for more on these key metrics.)
When I was a treadmill salesman, I had a very gruff, fast-talking boss. She was great at sales, and I wasn’t.
One day, while she was visiting the shop, a shipment of new treadmills arrived at the loading dock. Just as we started unloading the treadmills, the phone began to ring.
It rang once. I kept moving boxes. She didn’t say anything.
Then it rang again. I continued to move boxes. She stared at me.
When it rang a third time, she sprinted to the front desk and answered the phone, out of breath. She spoke with a potential client for 10 minutes. Then she put the phone down and made a beeline for me.
“You always answer the phone,” she yelled. “There’s always a $10,000 client on the line!”
After that, I answered the phone every time—unless I was talking to a customer in person. But you can bet that I returned phone calls fast. The perspective on a person’s potential value added an urgency to my care for clients.
Three Reasons to Track LTV
The reason the top gyms in the world track LTV is simple: They want to know what every client is worth financially.
The value they provide to the client is unmeasurable: health, energy, vitality, self-esteem, etc.
But the value the client provides in return is measurable. And there are good reasons to track it.
First, you’ll know what you can afford to spend to acquire a client. If you live in an area with high turnover (or you just have poor retention), then you’ll have to buy advertising to grow your gym. But how much? And where do you invest your marketing dollars? Knowing your LTV is the first step.
Second, instead of looking at clients as walking dollar signs, you’ll actually be more patient with them, you’ll give them more individual attention, and you’ll try to increase LTV. Simply knowing the number will help you make it better.
Third, you’ll stay focused on your clients instead of worrying about the Black Friday discounts your competitors are running. You’ll stop chasing headcount and start thinking about how to keep the best people training with you.
I promise: Your perspective will change when you look at a client and say, “That person will spend $12,000 here over the next few years.”