 the easiest way to calculate the lifetime value of your customers. Now, check it out. Are you trying to run ads, but you don't know how much you can spend because you don't know what a customer's worth? Actual lifetime value will help you figure this out. Maybe you're spending too much, maybe you're spending too little, but in this video, I'm going to show you exactly how to figure out lifetime customer value and we're starting right now. Hey, JR Fisher here and if you're new to my channel, do me a favor, go ahead and subscribe. Hit that big subscribe button down there and next to it, there's a bell sounds just like this. If you hit that bell and you turn on all notifications, you become a member of the VIP family and we will actually notify you every time a new video comes out. Pretty cool, right? Now, I've been selling online since 2009 and I've sold millions of dollars with both physical and digital products and here's what I figured out. Some things work, some things don't. So on this channel, what I do is I share with you all those tricks and techniques that I've learned along the way so that you can start, run and grow your online business and I've got a bonus for you. You're going to love this. I have an e-commerce course that's worth 97 dollars. That's right, but guess what? You watch this video, you can have it for free. That's right. In the description, all you have to do is click the link and you can actually get it for free. Now, let's talk about this lifetime customer thing, this lifetime customer value and why it's so important. The main reason that lifetime customer value is so important is that that customer that you're buying through an ad or you're spending money to acquire may be worth a whole lot more than what you know and if it's worth a whole lot more than what you know, then of course you can buy more customers and in the long term you'll be profitable. Now, I want to give you an example. I have a book I sell called Four Steps to Finding a Profitable Product to Sell Online. That book sells for $5.60 but it cost me a little over $10 to actually acquire that customer. Now, you may be saying, well, if you do that, you know, you're spending $10 and you're selling a product for $5.60, you're actually losing money. That's a bad thing. But check it out. Let me show you what you need to do. What I've done on this particular ad is I've sold the book, yeah, for $5.60 but there's a bump on the order form and that bump on the order form gives me another $5 and here's what we figured out. 80 to 85 percent of the people who actually buy the book will also buy the audio. So that almost doubles my income off that particular product in that ad but we don't stop there. The next thing we do is offer continuity. Now, what's continuity? Well, continuity is where you pay a set amount of month and you get a particular value. So after we've sold them the book and sell them the audio, we actually sell them what? A continuity program on what? On how to make money online, sell products online because they just bought a book that tells them how to find a product. Now they need to know how to sell that product online. The continuity is $27 a month. So what we've done is we've gone from $5.60 added $5 for audio and now offered them a $27 a month continuity to a course that will help them achieve what they want to do. Now you say, well, not everybody's going to take that. You're right. Not everybody does take that. Not everybody takes the audio either but enough people take the audio and enough people take the continuity for enough months to where it turns that customer into a value of $31.29 and since it cost me a little over $10 to actually get that customer, I made a profit. Now I know I can make more money on them. Now, that particular funnel right there doesn't include the entire lifetime of this customer because we have other courses. They may get coaching. They may join my inner circle. They may join a lot of different things so that actual customer value is much higher than that too. On the food survival side, okay, so we sell survival food. We actually will sell them a sample can of food and what we figured out a few years ago was that if we got somebody to buy a can of the food or a five pack sample of the food that they were going to spend more money on down the road because they were testing it. It only made sense. They were testing it out and if they liked it, they would buy more and that actual customer over six month period of time will spend $320 whereas the initial sale may have only been nine or 10 bucks. So knowing that information, you can spend a whole lot more to acquire a customer than you could if you were just trying to sell a product and make a profit on that particular product. Okay, in theory, this lifetime customer value calculation should be pretty easy. Unfortunately, it gets a little complicated and I want to take you through a process of how you can do this and how you can calculate this so you know exactly what your customer's worth and you can make wise advertising decisions or campaigns based on your advertising dollars. Now, the number one reason people don't do this is because it's kind of confusing. If you were to do a Google search right now on lifetime customer value and you see some results like this, yeah, you're going to get a little confused. You're going to say, my God, I don't even know if I can do this, but I'm going to make it super easy so stick with me. Now, if you've got a high level degree in math or finance or something like that, feel free to use some of these calculations. However, if you want to be like the average person and get a quick calculation and know what's going on, that's what I'm going to show you right now. Now, these calculations are super easy to do if you break them down into chunks. That's the important thing is once we've got it broken down a little bit, we can go ahead and calculate these things and they can change. The variables can change based on how many weeks you want to look at, how many months you want to look at, how many years you want to look at, but basically the formula is always going to be the same. Okay, so here's the variables that you're going to need to do these calculations. The first one's going to be average order value. That's A-O-V, average order value. Now, average order value is really pretty easy to figure out, but it's super important. It's just the average amount that every customer spends as they go through your funnel or through your sales process. Now, knowing this number is really important because we can do things to increase our average order value and thus make more profits. The next thing I'll tell you is purchase frequency. That is, how often does that customer actually buy? You're going to need this to actually calculate what the lifetime customer value is because we got to know how often they buy also. Again, this particular metric can be really, really useful because frequency is something that tells you how often they're buying or they're buying once and never buying again or they're coming back several times and in armed with this particular statistic, you can actually increase frequency based on what you do with that customer after they purchase. Number three is customer value. Customer value is very important too. What you're going to do is you're going to take your average order and you're going to look at frequency and you're going to get your customer value. So very important for you to do that because if you do that, you have one more metric that you're going to need that's going to get you towards your goal. Number four is customer average lifespan. So this is basically you saying this customer's lifespan is going to be six months or two years or whatever it is and that's going to be your t-factor. This is going to be the factor over time how long is this customer valuable and makes you money. For example, if a customer bought from you and after about six months most people didn't buy from you anymore, your t-factor would be 180 or 180 days. If they stayed in that sales funnel and bought from you for about a year, your t-factor would be 365 for 365 days. That way you know exactly what your lifespan is and it's going to be different for different businesses and different types of products and services. Now instead of you trying to figure this out on your own, there are tools in websites like Shopify that actually goes through the different type of niches. It will actually tell you about how long a customer is going to stay in your funnel and continue buying from you. So use some of these outside tools. Don't try to necessarily calculate this out on your own because you would actually need years of data to do this and not saying you can't do that, but if you haven't been in business for years you probably don't have access to that data. So we want to use a third party like Shopify, something like that, to figure this out. And there's other tools out there too. You can Google them for free tools for lifetime of customer and find other ones that have niches and the amount of time that they actually stay one of your customers. Okay, let's look at the customer lifetime value formula. If you use this formula, you're going to have a really good grasp on what your customers are worth and it's really going to help you with your advertising dollars. By using the formula you see on the screen right now, you can calculate that average customer value and you'll know the lifetime value of your customer also so that you can make good advertising decisions. Now this formula we just looked at, it's pretty simple, but it ignores some really big basic things like, you know, what is your profit margin, what is your cost, you know, all these different things. So we want to calculate all that in so we can figure out what that customer's actual value and profit is to us because just because they're spending $500 doesn't mean that they're worth $500 because you've got other costs that go into that. Okay, so right here you can see in this sample, this is number one, the customer lifetime value including margin. So we've added in one more factor to this particular process. A customer's lifetime value calculation becomes a lot more meaningful when you look at the margin that you're going to see over the course of a shopper's life. You might want to know the actual profit you will gain from each new customer, not just the revenue like I just said. This calculation factors in margin to order to determine the profit you will see from each and every customer that goes through your sales process. Number two is actually going to be customer lifetime value by segment and what this does is this takes the same formulation and it actually looks at the different segments of your customers on your list so it can figure out what the value of each one is. Maybe customers that come from ads are worth a certain amount whereas customers that come from your blog are worth a different amount whereas somebody who came from one of your YouTube videos is worth a different amount so it is important to segment where they came from so you can calculate that. Now really there are endless ways to segment your customers but you don't want to make it overly complicated. At some point you have to get a number out of it and if you overly segment your customers you're going to have way too many calculations it's just going to confuse you and you don't need that much data really anyhow so you just figure out the basic places they're going to come from segment them that way and use that formula. Now some ways to segment that I would suggest could be channels a channel would be say YouTube one of your ads your blog another way you could do this would be by geographic location you know different states or different countries that will help you too because all these things are going to vary the people that buy in the UK versus the people that buy in the United States they're going to have a different customer value so if you're running your ads to one of these locations and you don't take that into account it's not going to be accurate. The other thing you want to factor in is action so we want to look at based on who that customer is not only location or how they came into our sales process but we also want to look at what kind of customer it is so if it's a loyalty customer if they know they're going to get certain discounts that they hit certain plateaus then of course that may change what they're buying actions are so you want to take all that into account look if you're watching this video right now you know you need to figure out what your lifetime customer value is I will tell you this you don't have to make it real complicated you know even if you just use the basic lifetime customer formula that I showed you in the beginning of this video you're going to be way ahead of everybody else it's been proven that only about five percent of online sellers ever calculate the customer lifetime value and how you can get an advantage there is if you know your customer is worth more than what the other people think their customers are worth you could spend more on advertising and you could capture more of the market so you don't have to make it overly complicated but you do have to do some of the basics to figure out what they're worth now have you calculated your customer lifetime value I want to know put it in the comments below if you have any questions about this video or how to calculate some of these things put it in the comments below I love to hear your suggestions I love to see your successes and if you have problems we want to help you out with that because that's nothing more than opportunities now if you haven't subscribed yet oh my gosh you need to do that go down there and hit that subscribe button down there and smash the bell the notification bell right next to that subscribe button you want to hit that bell and turn on all notifications if you do that guess what you can join the family you can join the Fisher family and you will be a VIP because I will let you know every single time I do a new video don't forget to grab your free e-commerce course it's a $97 course you can get it absolutely free by just clicking the link no credit card required thanks a lot for watching this video and I appreciate you being here and I'll see you in the next one hey thanks for watching my video don't forget to subscribe to my channel and click that little bell right here so you can be notified every time I do a new video also click on one of those videos there keep watching on my channel