This concept is so important that it deserves its own chapter. It impacts on your marketing decisions and how much you are prepared to pay to acquire a client.

The lifetime value of a client refers to the total revenue you expect them to bring to your business – for the lifetime of either your business or the client.

Let’s take an example. You have spent $300 on some advertising. It brings in 2 new business clients at $100 for each appointment. You made $200 over the two-week period following your adverts publication date. Then you conclude this advert did not pay for itself and was therefore a waste of money.

Wrong conclusion!

You don’t know yet as you have not waited to see if you will get repeat appointments. In 2 months time, one of these clients might want you to train various staff members and new employees on newly installed software. They want 3 days worth at $400 per day. That’s a cool $1,200. And there is the likelihood of further work down the line.

On this basis, your $300 spent on advertising is starting to look like a good investment. Instead of losing money, you are now getting $1,400 for a $300 investment. Your return on investment is considerable.

The concept of lifetime value of the client is starting to come into play. Initially, the client didn’t bring much revenue. But as the months went by, they added considerably to your bank balance. Over their lifetime, you are likely to receive $1,400/2 = $700+ per client.

The sample size is too small to be accurate, but over time you can estimate more accurately what each client is worth.

Then, you know how much you can spend on advertising. For example, if each client is worth – on average - $2,000 then that $500 advert doesn’t seem quite so expensive when it brings in 2 new customers.