Glassagh Consulting ideas to drive your business forward
Glassagh Consulting ideas to drive your business forward

How valuable are your clients now and in the future?

There is a great quote from Henry Ford I came across recently,


“A business absolutely devoted to service will have only one worry about profits, they will be embarrassingly large”


It is clear that retention will be the new marketing of the future as businesses move from a hunter dynamic to a client farming engagement to maximise profitability with a service proposition tailored to the needs and objectives of the client. The age of the client farmers is upon us.


The first step in client farming is to identify the monetary value of the relationship to your business with each of your clients.  


Customer Lifetime Value (CLV) is a common process in most businesses especially the service sector, but for some reason it is hardly used in the advisory profession.


This is usually, because, while it is a common concept in marketing, those without a background in marketing rarely understand it or how to measure it. However, it is a technique that can add real value to any business.


CLV helps a business identify the net profit a client will provide over the lifetime of the relationship with that business.


CLV is fundamentally important as it can give you a clear picture of how much each client is worth to you and the repeat business you should expect from them. This is because your clients do not represent a single engagement but a relationship that is far more valuable than any one off transitional activity. The secret is to understand this relationship and map out the engagement opportunities and what they are worth to your business.


CLV should not just be about one client, it should be about a helicopter view of your entire client bank to highlight that while some clients never return and others never leave, on average your business will have a typical client lifetime journey and that has a specific economic value which can and should be calculated.


How do you calculate Client Lifetime Value?


CLV is not a dark art, but a marketing technique that can influence your future client acquisition and retention strategies going forward.


Trust me, the process is fairly simple and any business can do it. The calculation is as follows:

It is the total gross profit of a customer throughout the lifetime of the relationship with your business, minus acquisition, marketing and ongoing service costs.


This figure is the lifetime value of each client.


Once your CLV is calculated, this insight can help any business formulate their client acquisition strategy safe in the knowledge that they now know the current and future value and profile of their most profitable clients. The strategy should be to retain them and any new client acquisition should concentrate on clients that match this profile.


Also, and perhaps more importantly, once you are clear about the frequency and potential value of any future engagement with your clients, you will have a better handle on how to allocate your sales and marketing spend.


CLV analysis should be the foundation of your client retention program. This is because, part of the process of identifying future value is of course an analysis of what will be the potential lifetime of the client. You need to map out what their journey of life will be, and when and how will they need your advice, empathy and proposition. You can then calculate the potential value they will add and decide how important that client is to you and your business.


In the old world of the Hunter sales model, one-off sales were fine, but isn’t it more attractive to your business for good clients to provide you with repeat business on an on-going basis?


The obvious way to achieve this is to have an attractive proposition with a fair price and deliver excellent customer service.


We will see more and more business models moving away from hunting for new clients as on-going service provides a more profitable business paradigm.


I’d ask you all, how many of you know the current and future monetary value of each of your clients and how many of you use this metric to influence the profitability and success of your marketing, acquisition and retention strategies?


As service becomes a growing focus for the every business, then it’s a wise exercise to undertake, and then your clients will be very satisfied with your service proposition and your profits may indeed be embarrassingly large.


John Joe McGinley

Glassagh Consulting

March 2016


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