“You’ve no doubt heard again and again that your customers are valuable to your business. But do you know just how valuable they are? Can you define how profitable each customer, or each customer segment, is? And is it really important to do such an analysis?”
Sue Barrett, a sales advisor, speaker and coach, speculated on these questions and more in a recent blog post on LinkedIn. The blog, titled “What is the Lifetime Value of Your Customers?” delves into not just the value of an initial sale, but the cost of acquiring and keeping the customer, among other factors.
Barrett devised a simple way to deduce a customer’s lifetime value: “To begin determining the lifetime value of a client, start looking at both the revenues the customer generates and those that it can continue to generate each year, as well as both the fixed and variable costs associated with selling to that customer. These costs should include the cost of acquisition, support and maintenance of the account.”
These are concepts that every business owner, including fitness professionals, should consider. And Barrett’s analysis raises another question: Is it more profitable to attract new members, or retain them?
My guess it’s more expensive to focus profitability on the sale of new memberships. Consider the time, effort and money put into your last marketing campaign, and the revenue shelled out to sales team’s salaries, bonuses and commission.
Now, consider all the opportunities you have to advertise non-dues revenue to customers that have already voted for your brand (by purchasing a membership). Personal training, pro shops, juice bars, tanning … in many health clubs, members have opportunities to purchase much more beyond their monthly dues. And these opportunities are already existing.
I’m not saying you shouldn’t advertise or put effort into attracting new prospects. That’s ludicrous. However, I do advise putting similar effort into the sale of non-dues revenue to existing members — ones that are already willingly spend time and money with your company.
Mainly, I implore you to sit down and get to the bottom of the true value each of your members and clients represent. According to Barrett, doing so could help you by:
- “It can be used to reduce the cost of sale (and improve the likelihood of repeat business).”
- “It helps improve market segmentation so that salespeople fish where the fishes are.
- “It improves advertising focus because the message is targeted.”
- “It opens up potential new segments that rivals (who chase larger deals) may ignore.”
Determine the lifetime value of your customers — the number may surprise you, and change the way you look at your customers.
Rachel Zabonick is the assistant editor for Club Solutions Magazine. She can be reached at rachel@clubsolutionsmagazine.com. Reach out to her about exciting events or programs your club has implemented, or to share the amazing accomplishments of a member.
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Rachel Zabonick-Chonko is the editor-in-chief of Club Solutions Magazine. She can be reached at rachel@peakemedia.com.
