FITNESS BUSINESS ARTICLES
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Here's A Quick Way To Find Out How Much A Client Is Worth To You Apr 30, 2006 Do you know how much a client is worth to you? Do you know how to calculate their Lifetime Value (LV)? If you don't know then you need to find out. Why? As marketing wizard Jay Abraham explains in his book, Getting Everything You Can Out of All You've Got:, "Until you identify and understand exactly how much combined profit a client represents to your business for the life of that relationship, you can't begin to know how much time, effort, and, most importantly, expense you can afford to invest to acquire that client in the first place." Clients are often worth more to us than we realize. It's more than just the monthly membership fees they pay. If you look at only this number, you vastly underestimate the value of your clients. A client is worth the sum of everything they pay you over the lifetime that they are your client, and all of the business they bring you through referrals during that same time. Ultimately, this can be a very large number. Example #1 - Health Club Membership Fee This example is for basic illustrative purposes only and does not account for inflation or cost of living adjustments. John Smith is a club member who pays a monthly membership fee of $55. On an annual basis, that translates into $660 per year. If John continues as a satisfied client and barring any change in circumstances (moves, becomes ill or dies), he will probably stay with you for approximately 4.9 years (IHRSA/ASD 2002, Health Club Trend Report estimate). Therefore, John's potential lifetime sales value to you is $3,135. Lifetime Value = Monthly Fee x Expected Life $3,135 = ($55/month x 57 months) (4.9 years = 57/months) At a minimum, you know that John is worth $660/year if he purchases nothing else from you but a basic monthly membership packaged and remains a member. It does not take into consideration any additional service or products John will buy or any revenues generated from his referrals. These are also important and should be considered in the overall scheme of things. Example #2 - Personal Training Fees This example is for basic illustrative purposes only and does not account for inflation or cost of living adjustments. Susan Doe hires the services of a personal trainer. She purchases a three-month package which allows her to work with a personal trainer for 10 hours/month at $60/per hour. The total 3-month package is $1800. If Susan continues as a satisfied client and barring any change in circumstances (moves, becomes ill or dies), she will probably sign up for an additional 3-month and up to one year. Therefore, Susan's potential lifetime sales value to you ranges from $1800 to 7200. In both examples, these clients bring additional LV in what they can generate in terms of referral sales. Be careful not to include these referral sales numbers in the LV of the client that referred them. This may cause you to overestimate your profits by counting them twice. Once under the client that gave you the referral and again when you calculate the referred client's Lifetime Value. Every club wants as many new clients as
possible. Unfortunately, very few
owners/managers feel comfortable in calculating the amount they will receive
from each client, and what they will need to spend to acquire that client. It is important to be able to estimate your
customers' lifetime value as closely as possible so that you can make informed
decisions about your marketing costs and budget.
Tom
Perkins is eFitnessTracker's Business Coach, a business solutions coach and a certified personal
trainer who leads fitness professionals to profitability.
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