If there is one overriding principle that I can realistically call marketing alchemy - the ability to turn lead into gold - your idea, time, investment, and effort into limitless profit and wealth, no matter what business or professional practice you run - it is the ignored or little-known and rarely applied principle of Lifetime Value.

I might not have met you personally, and I might not be familiar with your particular business or practice, but I can tell you this, with almost 100% certainty: Unless you are making every marketing decision, every buying decision, every pricing decision, every product or service extension decision, every directional and logistical growth decision based on the average lifetime value your business produces, or has the potential to produce, you are accepting typically only a third to one hundredth the sales, bottom line profits and personal wealth you and your enterprise is readily capable of producing.

Put differently, unless and until you are aware of, and market in accordance to, the lifetime value of your average customer or client, it is impossible for you to, one, realise the far greater revenues, profits, and wealth your enterprise can produce for you, and two, it is impossible to know how to garner substantially more from your existing, and future, effort, overhead, and expenditure.

Most organisations - large, medium and tiny - are blissfully unaware that such a principle as lifetime value exists, let alone how to tap its rich veins of growth opportunity.

Lifetime value changed my life. It changed my business, my profits, the amount of personal wealth I am able to generate for my effort. And it changed the intangible things like the amount of joy I get from running my business, the level of satisfaction and pride in achieving so much more for the same effort, the level of satisfaction and pride my staff get from doing their jobs.

It made me realise I can pay staff better for their performance, and attract the best staff for each activity I want performed, because the environment was more satisfying, and the compensation is more attractive than they can get elsewhere.

Lifetime value is the golden principle behind everything you want to achieve in business, but so far think you’re unable to. It is, realistically, what I call, marketing alchemy.

This are SIX things lifetime value will do for you.

1. It allows you to more rapidly and more effectively attract high volumes of new customers or clients to your business.

2. It gives you the marketing and financial scope to figuratively take your prospects by the hand, introduce them to the benefits and advantages of what you sell, and help them make a wise buying decision.

3. It gives an opportunity to make their first purchase from you considerably more easily than they would be able to under a ‘normal’ buyer/seller environment.

4. It is the foundation of building long-term relationships with your customers or clients.

5. It provides you with the leverage to generate up to ten times the amount of profit for every pound you invest.

6. It gives the selling power to dominate your market and position your business as the leader in your field.

Let me take you on a fascinating journey of discovery through lifetime value, and how to apply it to whatever category of business or profession you own or run.

First realise, most companies look at their customers, en masse. They look at their sales records at the end of the week, or month, or quarter, and see that they’re made up of “X”-number of sales, totalling “X”-amount, which they either consider good or poor performance, or something in between.

It’s an erroneous way of analysing how your enterprise produces revenue and profits, and what it’s higher potential is, because it disguises your greatest growth opportunities.

Instead of en masse, you should always view and analyse your enterprise customer-by-customer, or client-by-client, or patient-by-patient.

The lifetime value is the total profit worth the average customer brings into your organisation, over the life of his or her buying relationship with you.

You see, most organisations throw the weight of their effort, time and investment into attracting and acquiring new buyers, and make a profit from them. They fail to recognise, and therefore shift the weight of their marketing effort to the back end - making regular, additional buying opportunities available to their existing customers or clients. That is where the big money is in any virtually all businesses.

By computing your business’s current lifetime value, then placing the emphasis of your effort on increasing lifetime value with back end marketing, you suddenly possess the knowledge and the means to accelerate the growth of your organisation by up to ten times, or more.

Let’s get to the meat. Here’s how to calculate the average lifetime value of your customer or client.

Put a figure to these five questions:

1. What does it cost you to acquire a new customer or client? For example, If you run ads that cost £1,000 each, and on average, you acquire four new customers every time you ran the ad, it costs you £250 to acquire each new customer.

2. What is the value of your average sale? All these figures, by the way, should be net, they should exclude V.A.T. or sales tax, depending which country you’re in.

3. What is the gross margin of that sale? Simply deduct the hard cost of fulfilling your average sale, from the sale figure. Do not include general overhead. The figure you want here is simply the difference between your selling price, and the money you’ve got to expend to furnish that sale.

That might include a staff’s time, like a service engineer’s time, proportioned to just that sale only, or a practitioner, or a consultant’s time, the hard cost of that staff’s time to you, for that sale.

For instance, if it took one hour to furnish the sale, then you would proportion one hour of your engineer’s, or practitioner’s, or consultant’s time as part of the hard cost, plus any hard cost of materials or product.

4. How many times does your average customer or client buy from you per year. It might be once, it might be ten times. Then, how many years does he or she continue buying for you - the lifetime of your relationship?

Be conservative with this, many business owners tell me that customers continue buying from them for ten years or fifteen years. But it’s rare that this is the average. If you’re in doubt, or if you can’t calculate it accurately, three years is about average, I would put that down.

5. The lifetime value of your average customer or client is, therefore, the gross margin of your average sale - your answer to question “3” - multiplied by the total number of times the average customer or client repeats that average sale over he number of years you’ve put down.

I should say, if you have a new business and therefore haven’t got sales records yet, guesstimate the answers, but make sure your calculations are conservative. I don’t want you to accuse me of being overly enthusiastically rose coloured in the vision I am helping you clarify. Always be conservative, then if your results are higher or much higher, you’ll thank me.

Here are two examples.

First, let’s say your average sale value is £200 pounds, with a gross margin of £70 pounds, and the average customer spends that with you twice a year, and continues buying from you for three years.

Your average lifetime value is therefore £70 x 2 x 3: £420.

Second, here’s a business with a higher average transaction value, £2,000. You make a gross margin of £1,200 and the average client keeps purchasing from you for three years.

Lifetime value = £3,600 (£1,200 x 3 = £3,600).

How do these figures reveal the larger potential of either of these businesses?

Most businesses set a marketing budget at the beginning of their financial year. Their accountant tells them they can afford to invest “X” amount on marketing, but they can’t afford to spend more than that.

This is a big mistake.

 If you calculate your available marketing budget on either a fixed amount per year or a percentage of sales, say 10%, you disguise and stunt your greatest growth opportunities.

Here’s why: The first example company has an average sale value of £200, with a gross margin of £70. Let’s say they therefore set a marketing budget allowance of 10 percent of the sale, £20.

So ‘£20′ is all they’re willing to invest to acquire each new customer, to grow their business, with the remaining £50 contributing to overhead -premises, staff and utilities.

So they place ads at a cost of £200 each, and they’re happy if each ad attracts ten new customers. This fits their formula of spending £20 on each customer acquisition.

Or, if this company set a fixed, yearly marketing budget - of say £4,800 - £400 a month - and they used advertising as their primary method of acquiring new business - just for this example - and every ad they ran at a cost of £200 produced ten new customers, they would limit themselves to acquiring twenty new customers a month - two ads costing £200 uses up their £400 a month marketing budget.

Remember, these twenty customers produce £70 of gross margin, each average sale, they buy twice a year on average, and they continue buying for three years. So for each £200 ad investment, this company generates £4,000 - that’s £70 times twice a year, £140, times three years, £420, times ten customers, is £4,200, minus the original cost of the ad at £200, leaving £4,000.

The total number of customers this company would be able to attract per year is 240 - twenty a month from their two, monthly ads. The total lifetime value from their 240 customers, over three years, is £96,000.

Now look what happens when you explore the opportunities Lifetime Value marketing exposes.

If you were the owner of this company, and you calculated the lifetime value of your average customer as being £420 over three years, would you still set a fixed budget for marketing, or a percent-of-sales budget, and therefore limit the number of £420 customers you can acquire?

Why would you ever wish to limit the number of £420’s you’re able to put in your bank?

If each customer is worth £420, in theory you could spend £400 on acquisition marketing, per customer, and still make £20 pounds profit. I would never advise you do that, but you get the idea.

If you know you have the capability to invest more on marketing, everything doesn’t remain the same. You don’t attract the same numbers of customers, you attract higher numbers per pound spent because your marketing is that much larger, or wider spread - ranged across different media to reach a greater breadth of audiences.

Your actual available budget for acquiring new customers is far larger than seems sensible on the surface, or that you thought possible, when you only take into consideration the value of one sale at a time.

It is only possible to realise the true potential of your business when you calculate the lifetime value of your average customer or client.

Let’s say, with a lifetime value of £420 per customer or client, you decided to go mad and double the £20 you’ve been willing to spend to acquire each new customer, and now invest £40.

If everything remained the same, your lifetime value would reduce from £400 - £420 minus the £20 you were spending, to £380. So worse case scenario, your additional investment in more effective marketing - which could be larger ads, or more frequent ads, or ads and sales letters sent to targeted mailing lists, or whatever - doesn’t result in an increase in customers, unlikely but let’s assume it for a minute. Well, that’s not the end of the world. Your test would show that your down by £20 over three years. You’ll survive that.

The likelihood, though, is that your more effective marketing will attract a higher number of new customers. If all you did was use your double size investment to double the number or size of ads, it’s fairly easy for you to double the number of new customers.

Look what the result of this new scenario is. You double the number of customers you attract every year, it’s now 480. But you’ve also doubled your marketing investment, from £4,800 to £9,600. Has it been worthwhile?

Let’s see. Remember, your current lifetime value per 240 customers attracted, is £96,000 over three years. But 480 customers generates a lifetime value of £192,000.

If your more effective, £40 pounds per customer, attracts more than double the number - which it can easily do as you apply the strategies and approaches you’re learning in Business Power! - let’s say it attracts three or four times the number of new customers at the front end - these are increases I and my clients are producing almost every day by using direct-response marketing - then your lifetime value skyrockets to £292,800 or £393,600 - that’s three times as many customers, 720, times £420 lifetime value, minus £9,600 marketing costs, is £292,800. Or four times the new customers, 960, times £420 lifetime value, minus £9,600 costs, is £393,600.

Are you beginning to see the very much larger opportunities you have, right now, to grow and create wealth from your business?

Here’s How To Determine The Right Amount Of Money To Allocate To Lifetime-Value Marketing.

There are three main categories. Take the category that fits your business as closely as possible, and then work within these guidelines to trigger lifetime value growth.

Category #1. You have sufficient cash resources to invest money in an ‘ideal’ lifetime value marketing programme, and attract a large number of targeted customers or clients as rapidly as you can. You can comfortable wait up to three years for profits:

Why would you be prepared to wait three years?

Let’s say your average lifetime value is £4,000 over three years. You currently think that investing a hundred pounds to acquire each customer is high. But in theory, now that you understand lifetime value, you could invest £3,900 in extremely persuasive marketing and ethically tempting carrots, and still make £100 profit.

But you don’t have to invest anywhere near that amount to attract two, or thee, or five, or ten times or more customers to your business.

Let’s go through it. If your £4,000 net value over three years represents, let’s say, six purchases of product, or service uses, with each average transaction producing £667 profit (£4,000 divided by 6 = £667).

Before you understood lifetime-value concept, you would look at your £667 profit and allocate, maybe 10%, 20% to marketing.

Let’s say you allocate 20%, £133. That marketing figure produces the number of customers you are currently attracting — let’s say it’s 500 a year.

So per year, your business is producing a £1,933,500 lifetime value - that’s 500 new customers, times £4000 over three years, is £2 million, minus 500 times your £133 acquisition cost - £66,500 - leaves £1,933,500. Not bad. But your enterprise is capable of generating far more.

By allocating an amount based on understanding the £4,000 lifetime-value of your average customer, you suddenly realise that by increasing what you’re prepared to invest at the front end, you can significantly increase the volume of customers or clients you’re able to attract, and multiply your accumulated lifetime value.

Let’s say you decide to invest £400 or a thousand or even £1,500. How many more customers do you think you can attract with that level of increased marketing muscle?

Even if you proportion the increase in customers directly to the increase in marketing investment, here’s what happens.

£400 is three times your current £133 customer acquisition amount. Let’s say that three times increase in marketing activity produces three times the number of customers each month. So now, instead of 500 customers a year, you attract 1,500. Here’s what happens to your lifetime value.

Because your three times investment increase, produces three times the number of customers at the front end, your acquisition cost per customer actually has stayed the same, at £133. So £4,000 lifetime value per customer over three years, minus £133 acquisition cost, is £3,867, times 1,500, is £5.8 million. That’s better.

Let’s now say that by being prepared to spend a thousand pounds to acquire each customer, your increased marketing activity actually attracted seven times the customers. Is that realistic? It absolutely is. When you increase your marketing spend from £133 to a thousand, you can do a heck of a lot more out there in the marketplace.

You can increase the size and frequency of your advertising. You can mail to targeted mail lists. You can do some radio advertising. You can create more elaborate and impressive brochures, samples, bonuses.

Let’s see how seven times the customers, increases your lifetime value. Again, at seven times, your acquisition cost per customer remains at about £133. So net lifetime value per customer is £3,867, but now multiplied by 3,500 customers. You now accumulate a more lucrative £13.5 million within three years.

And what if you invested £1,500? That’s over 11 times the marketing clout, than your original £133. If it attracts a proportional increase of 11 times the new customers, you now attract 5,500 new customers, multiplied by £3,867, is £21.2 million.

What would you rather have? The £1.9 million your business was generating before you understood lifetime value, or the £5.8 million, or £13.5 million, or £21 million you can generate, simply by understanding and marketing in accordance to lifetime value?

Okay, Paul, that’s stimulating, but I haven’t got that kind of cash to invest in lifetime value marketing at the moment. Anything I invest would have to return profits within one year, no longer.

So let’s step down for Category #2. You have some cash resources to invest and want faster profit results. You want to recover your investment and generate additional profits within one year or less.

All you do is reduce the amount you invest to fit within your maximum, comfortable investment period, in this example of one year. You are still making an average £667 profit from each transaction, twice a year. So the profit you make in one year is £1,334, minus the acquisition investment of £133, that’s £1,201.

Base your investment marketing on £1,334 first-year profit, not the whole three year £4,000. I would look at investing an amount of three or four hundred, up to 1,000.

Here’s what your business would look like after one, two, and three years.

Let’s say you increase your spend to £400, a three times increase. That three times increase in marketing size or activity produces three times the number of customers at the front end. So at the end of year one, instead of 500 customers at 1,201, which is £600,500, you’ve now created 1,500 customers at £1,201, which is £1.8 million.

Year two, is £2 million (£1,334 times 1,500 customers), and year three is another £2 million. So total lifetime value on those 1500 customers is £5.8 million.

Now let’s say that Category #3 is a fairly cash-dry company at the moment, which has to produce an almost immediate return on marketing investment.

This time I would engineer my investment to either break even on the first sale, so that I’ve in effect bought a new customer for free, or to make a marginal profit.

Each transaction produces an average £667 profit, so I would consider investing twice my usual £133 or slightly higher, maybe up to half the profit from the first transaction, £334, if the company can afford to do it, at least as a one month test.

Let’s take double, £266, and say that that double marketing activity produces roughly double the new customer response.

Instead of 500 customers a year, you now attract a thousand. That will make a quite significant improvement to your accumulation of lifetime value worth.

After year one, you generate £1.2 million. End of year 2, you generate £1.3 million extra, and end of year three, another £1.3 million, totalling after three years, £3.8 million - double your original £1.9 million.

Now, will, for instance, doubling your marketing activity always double the number of customers you acquire? Of course, not. You should expect - typically when you invest a little more than you are currently - to attract twenty, or thirty, or maybe fifty percent higher response.

When you begin to double, or triple, or quadruple, or quintuple your customer acquisition marketing investment, you’ll find every pound or dollar works very much harder, attracting multiples of the pound or dollar increase. A doubling of marketing investment at the front pull in three or four or five times what half the investment pulled in. You’ve got to test.

And most important, you’ve got to always experiment to discover ways of making each pound or dollar invested, produce the very highest response you can squeeze from it. You do that by applying everything I’m showing you throughout this programme.

The message is: no matter how small or large, or cash-starved or cash-rich your business or profession is, or what type, the only way you can possibly recognise, fathom, and bring about the far greater and more rapid growth your organisation is inherently capable of achieving, is to understand, compute, and market according to the lifetime value.

Action Step.

calculate the lifetime value of your organisation as it stands today, or conservatively guesstimate lifetime value if your enterprise is less than one year old, and you haven’t yet accumulated sufficient sales and gross profit records.

Once you have identified your lifetime value figure, create a larger test marketing campaign, based on an investment figure that makes sense within your lifetime value amount, and well within your particular cash resources.

Remember, tread carefully if cash is tight, never spend more money than you can afford to lose if your initial tests don’t respond as well as you would like. And if cash is sufficient, or plentiful, still test carefully.

Enjoy calculating, then marketing with lifetime value comprehension. It will change what you can accomplish in your business, it will change your customers or clients appreciation of you because of all the additional activity, premiums, education, advice, after-sales care and attention and interest you can demonstrate, and it will change your life as you become personally wealthier as a predictable result.