Understanding The Lifetime Value of a Client

We all know that business is about relationships. Prospects tend to do business with people they know and like. But do we really understand how much one relationship with one client is worth to us? Most people do not. A lot of businesses forget to account for the lifetime value of a single client when determining the ROI for client acquisition costs.

Here is an example. Let’s say I am a realtor and I sell a home. All the time and hard work it took to show the house, market the house, and close the deal has finally paid off. But how much exactly have you made from the deal? To keep the math easy let us say my commission is $3,000. That is it right? Most realtors would stop there. What they are forgetting is the potential for referrals and repeat business. When you consider the national average of a 25% chance of repeat business and 2 referrers per deal, the lifetime value of one client is more like $20,000! This fact is important to keep in mind when calculating ROI for marketing campaigns. It also stresses the importance of follow up, relationship maintenance, and going above and beyond for your clients. This doesn’t just apply to real estate. If you own a cell phone or buy razors, you’re buying from companies who understand the lifetime value of your business. Calculating the lifetime value of a new client is vital for any business, in any industry.

With that said, it is not too late if you have let some relationships grow cold over time. There are many ways to reconnect and the sooner you do so the better. The best way of course is to never let the relationship grow cold in the first place. Sometimes the smallest gifts can mean the most and can ensure you’re at the forefront of your clients mind the next time their friend needs a realtor.

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