Understanding and Increasing Your Customer LTV (Lifetime Value): Five Strategies to Make More Money From the Same Customers

Did you know that a big (BIG!) chunk of sales actually comes from existing customers?

How big? Well, I’m so glad you asked.

Think of it this way: research shows that, while most businesses make sales to anywhere between 5-20% of NEW customers, they close deals with 60-70% of EXISTING customers.

This means your likelihood of making a sale is doubled when targeting existing customers compared to acquiring new ones.

This is why your Customer Lifetime Value is so important to figure out and I’m literally giving you the formula to compute it. (It quite possibly may be my favorite math equation to date!)

In this episode, you’ll learn my four-step framework for calculating LTV and my five favorite strategies to boost it.

Click play to hear all of this and…

(00:00:01) How understanding your LTV can grow your business exponentially.

(00:03:08) The importance of existing customers.

(00:05:14) An equation and clear instructions for calculating customer lifetime value.

(00:13:29) Five strategies for increasing your LTV.

(00:18:56) The power of under-promising and over-delivering (and how to do it effectively.)

(00:20:04) How gamifying your offers or programs (like a reward system) can help keep customers engaged and loyal.

(00:22:49) Ways you can increase the average purchase value AND enhance their experience.

(00:26:00) Your next step after listening to this episode

Sources and resources discussed in this episode:

Listen to my podcast episode, How to Create an Unforgettable Experience >>HERE<<.

How to Calculate Your Customer Retention Rate, Max Freedman.

Customer Data: Designing for Transparency and Trust, Timothy Morey.

Step by Step Instructions to calculate your LTV using this equation:  A × B × C =

**(**Listen to the full episode for further explanation.)

Step 1: Calculate your Average Revenue Per User, aka ARPU.

Step 2: Determine the average lifespan of your customers.

Step 3: Find your Gross Margin Percentage.

Step 4: Multiply the variables in the equation.

For full show notes, visit:

https://jasminestar.com/podcast/episode410

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I built my website with Showit because it gives me total design freedom.

If you’re ready to build a website that works FOR you—and not against you—head to JasmineStar.com/showit for a 14-day free trial + first month free when you subscribe!

Transcript

Jasmine Star (00:00:01) - It's a. Welcome back to The Jazmin Starr Show, a place we discuss business mindset. And today we're going to be talking about your LTV, the lifetime value of a customer. The simple way to explain LTV is how much a customer or client spends with your business. Okay, so let's break this down by an example. You can join a gym today for $50 a month, but the gym doesn't think it'll only get one month from your membership. It knows it's going to get more. So let's just say based on their research, their customers stay on for about ten months at this gym. So the lifetime value of that gym member is $500, $50 times ten months. So no matter what stage your business is in, you have to understand, you have to know, and you have to constantly find new ways to increase the LTV. That is what is going to set you up for long term success. And since you're taking time to watch and listen to this episode, I already know that you're playing the long game.

Jasmine Star (00:01:02) - So LTV really matters. I'm talking about LTV today because in a recent launch, the team wanted to test for the first time how we might increase LTV for a course. So let's pause. A course is something that I have made before. I have created before, and when you are looking at the cost of a course, it is just the cost of the course. So the LTV of that customer would be the cost of the course, unless I get them to buy another course, unless I have them join a subscription, unless I am going to take a moment to offer them something else upon checkout. Simply put, normally a course LTV is the value of the course itself, because maybe it's not going to buy the same course all over again. But the team had a great idea to make an additional offer for a live summit. I'm going to be hosting in April. By combining the cost of the course and the cost of the ticket to the virtual summit, we were increasing our customer LTV. Oh yes, y'all.

Jasmine Star (00:02:06) - Okay, so in this episode, we're going to go over what lifetime value actually means and why it's important and how to calculate it. And of course, I wouldn't leave you without specific strategies that you can implement in your business today to increase your lifetime value. So this episode is focusing more on like how to make more money from the same customer or client. Instead of focusing of getting new clients in your funnel, I want to stop here and break this down. Why this is important. Study. Show that a customer is more likely to buy from you again than trying to get a new customer. So when we talk about LTV, this is such a great way to create a huge win with the same customer base. So make sure that you're going to stay tuned until the very end, because I will be giving you three strategic action steps based on what you learned in this episode, because y'all know you can listen to all of the podcast and watch all of the videos, but action is the only thing standing between where you are now and where you want to be.

Jasmine Star (00:03:08) - Okay, so y'all, let's dive in. We're going to start with defining the lifetime value. LTV is a metric used in business that represents how much revenue a customer brings in over the entire relationship of your business. So let's talk about why LTV is so important. Well, first of all, research shows that while most businesses make sales anywhere between 5 and 20% of new customers, they close deals with 60 to 70% of existing customers. Okay, so let's just take a second. 60 to 70% of sales based on research will come from existing customers. So I want you to think right now, right now you're like, no, Jasmin, but my customers only make a one time purchase. No problem. But can we think of other ways that the same customer can make a different sale? Maybe you have a membership or a subscription. Well, is there a way to keep them on one month, two month, 18 months longer? This is the way I want you to start thinking long of building your business.

Jasmine Star (00:04:08) - So this means your likelihood of making a sale is doubled when you're targeting existing customers compared to acquiring new ones. Now, of course, generating new leads. I'm just going to say it's like a really important, but we have to balance it with nurturing relationships with our current customers as well. And by understanding how much revenue an average customer brings in over their lifetime, you can make better decisions, you can forecast your sales, and you can allocate resources way more effectively. Okay, so if we're going to make a commitment, let's prioritize LTV. We can find gaps and places of opportunity by noticing patterns where customers are dropping off in their journey, and which products or service are the most popular with repeat buyers versus new buyers. So knowing this data allows us to refine our strategies and shape our offerings, and most importantly, it helps our customers and clients get better results. We're gonna stop here. You know, you're doing a great job as a business owner. When your current customers want to buy something more from you, ask.

Jasmine Star (00:05:14) - To buy something more from you and tell their friends about you. This whole conversation is looking at your current situation and asking yourself, how do I get more from what I have? Oftentimes we have conversations on the podcast and I'm like, more is more is more is more, and it is. But wait a minute, there's a different way of achieving more. So as you know, increase retention and referrals in your business are, you know, this is what happens when customers get results. And I'm going to say it again, increase retention and referrals in your business are a byproduct of customer results. So now that we've covered what LTV is and why it's important, I want to talk to you about how you can calculate your LTV. All right. Let's stop here for a second. I actually this may or may not actually stay in this video. We might edit it out of our podcast. So if you're listening to the podcast, y'all, you have to watch this video on YouTube like you just do.

Jasmine Star (00:06:12) - And when you're at YouTube, be sure to like and subscribe for more. Do I sound like a YouTuber? I, I'm like, do I want to? Do I not want to? Either way, I would love for you to see a visual of what we're doing. Now. If you're taking notes, I'm going to give you an equation to write down. And if you're driving or doing something else and can't take notes, it's all good. I want you to keep listening, because this will help contextualize for when you're able to relisten and take notes. Okay, so the equation that I want you to write down is a times b times c equals LTV. Don't worry, I am going to explain what all of this means. And you can find this equation with instructions in the show notes as well. So let's do this equation together by diving into our four step LTV calculation framework. Okay, so I know you're watching this video or you're listening to the podcast and you're like, when did I sign it for calculus? You didn't, but you signed up for running a business.

Jasmine Star (00:07:02) - So welcome to the club. Let's get working. Step one of the framework is to calculate the average revenue per user. This is otherwise known as Rpu ARPU. This number is going to replace the variable for A in the A times b times C equation. I just gave you your Rpu is the average amount of money each customer brings in over a specific time period. So how are you going to find this? Well, you're going to find this by dividing your total revenue by the number of customers you have. Okay. So let me give you an example. Let's say a health coach named Tyrone. Well, he offers personalized coaching sessions for em, you know, and he's going to generate $3,000 in revenue last month from 30 clients to find his rpu the average revenue per user, he would divide his total revenue by the number of clients, which would be 3000 divided by 30 clients, and that's $100. So now Tyrone's equation would be 100 times b times C equals LTV. And in case you're watching on video and you're wondering what my fancy whiteboard is, it's my daughter's easel.

Jasmine Star (00:08:12) - You know, it's like on YouTube, we're just going to use toddler art supplies to go through and run a better business. All right. Let's move on to step number two. And that's to determine the average lifespan of your customers. This number is going to replace the variable for b in the a times b times c equation. So this is how long on average a customer stays a buyer in your business. So how do you find this number. You find this number first by going through your customer sales records. To find the customer start date and end dates. You'll do this for all of your customers. You're going to do this for all your customers. If you don't have a lot of customers, or if you have a lot of customers, just take a nice handful of your customers to see if you have a way to measure. If it's just too much, then you're going to add up all of the durations and divide them by the total number of customers. Okay, let's get back to Tyrone.

Jasmine Star (00:09:03) - Let's say Tyrone goes back through his invoices and finds out that on average, clients stay with him for four months before moving on. So four months is Tyrone's average client duration. So now Tyrone's LTV equation would be $100 times four months times C equals LTV. Great. Now let's move on to step number three. Find your gross margin percentage. This number is going to replace the variable for C. That last one I don't want you to lose it right now because we're so close to getting to the most important number. Just stick with me here okay. So this is the percentage of revenue that exceeds the cost of your product or service, aka your profit margin. To calculate this, you're going to do two things. You're going to subtract your cost from your revenue. So for Tyrone this would be $3,000. His revenue -$1,000 his cost. Then you're going to divide that number by your revenue and multiply it by 100. So let's stick with this example. If Tyrone Health Coach business had a monthly revenue of $3,000, that's what he brought in.

Jasmine Star (00:10:12) - And his costs were a. Thousand dollars that would make his gross profit $2,000. Now, to find the gross margin percentage, Tyrone would divide the gross profit, remember $2,000 by the revenue, which is 3000. So 2000 divided by 3000 would be 0.667. Okay. Or otherwise, if you multiply it by 100, it would be 66.67%. So now now if you're listening to audio like Bless Your Heart, but just stick with me right now because this is so important in your business. I wish I knew what lifetime value was. I wish I knew what LTV was, I wish I knew how important it was if I had learned this lesson one month, one year, or five years earlier in my business. I am telling you, I left so much revenue on the table because I actually didn't know the main target. When you are running a business, your main target? Yes its profit. Yes it's growing. Yes, it's like a hockey stick growth. Yes, but your LTV is so so so important if you just know how to calculate it.

Jasmine Star (00:11:19) - So now let's go back to Tyrone. Tyrone's equation would be $100 average revenue per customer times four months, the average lifespan of the customer and 66% gross margin. And step number four is to put it all together. Now, don't worry, you're almost done. And I want you to do this for yourself. You. Now you have all three variables and now it's just a matter of doing math. So Tyrone found out that in step number one, his average revenue per user was $100. He found it in step two. That is average customer lifespan. How long they were working with him was four months. And then he found it in step three that his gross margin percentage is about 66%. Now that he has everything, he can simply plug in the numbers into his calculator and find his LTV 100 times four months. Times 66% is $266.68. Great. So now Tyrone knows that his LTV is $266.68 will just say $267. There you have it. Okay, we're going to pause here for a second.

Jasmine Star (00:12:31) - Prior to Tyrone using this example, he would look at his customers and think to himself, I always need to get more. I always need to get more. But he had a hard time figuring out, well, how do I get more? Well, if Tyrone knows that now, every person he signed up will become $267, he now knows how much money he's working with per user and can reinvest a certain amount of that money back in his business. So by following these four steps and using this formula, you can estimate the average dollar amount that each customer brings in to your business over their lifetime. And the best part about knowing this number is that now you have a starting point, and you can work on ways to increase it. If I were Tyrone, I would put a plan in place to get his LTV from 267 bucks to $300 in three months. So let's pause. How did I come up with that number? I didn't, I just said,, if I'm at 267, I'm pretty sure I can find ways to increase that.

Jasmine Star (00:13:29) - So I want you after you know your LTV, ask yourself, how could I drive up the LTV by three bucks? By 20 bucks by $2,000? Okay, so let's talk about how he can do that, because I want you to do the same. And I'm going to share five strategies for increasing LTV. But what's important to remember is that the best way to increase your LTV comes down to one very important thing prioritizing the customer experience and results. I recorded an episode. It was titled How to Create an Unforgettable Customer Experience. I want to recommend listening to that after you've listened to this one. If you haven't listened to it already, I'm going to link it in the show notes for you. Because my friends, that is going to be another major brick in the foundation that you lay. Now, if you're taking notes, write down one through five and I want you to leave notes for each one. And then I want you to circle the ones that you think you should implement in your business.

Jasmine Star (00:14:20) - And this is going to help you with the action steps that I'm going to give you at the end of the episode. Like, literally, I'm bringing you all to school. I should probably wear a little graduate hat with like some graduation garb because I am teaching you what I wish I had focused on or learn more when I was getting a business degree in college. So starting with strategy number one, segment your customers. Okay, so what does this mean by dividing your customer communication, most likely via email? You can divide them into groups based on factors like interest, what they're aligned with and especially their past purchases. And then you can customize their experience to cater to each specific group. Now, not only does this make customers more likely to buy again, but it also helps build their loyalty and satisfaction with your product or service. I want to pause here because we've been using Tyrone as an example, but I want to talk to you about how I have been doing this in business as well. So remember at.

Jasmine Star (00:15:13) - The top of the episode when I had mentioned we're going to be doing a live event, we weren't sure if we were going to share it publicly. People on the outside have been asking if they can go to this virtual summit, and while we didn't necessarily have a plan, our CEO, her name is Jade. She came to me and she said, I don't know if we're really going to promote it, but I do think that we should have it available for the people who asked. I liked the idea, but then I thought to myself, maybe I don't need to broadcast this on social media. But for people who are really inclined in my inner circle, people who are on our newsletter list, I think we should offer them an invite just to let them know that the options there. So then what I decided to do is I said we should segment our list. We should segment our list under the Jasmine Star brand. People who subscribed to the Jasmine Star newsletter. And we need to speak to them in a very specific way, because at this point in time, they probably haven't bought for me before.

Jasmine Star (00:16:01) - Then a different part of the list is we're going to send a new and separate email to users, members of social curator, because we're going to speak to them very differently. They're a part of our community. They're already paying and investing. And then we're going to have a separate email sent to former members of social curator. This means that they were a part of our organization and then for some reason, decided to go on a new path. But it doesn't mean that they necessarily had a bad experience, but we're going to have to speak to them differently than we would somebody who's never bought for me, somebody who's currently buying something from me, part of our subscription and somebody who has bought in the past but currently isn't a customer now. So do you see what we did? We segmented so that we could speak to them differently, so that we can hit on new and current pressure points for them, which would then help us increase our what? Elderberry okay, now this should be done with your email list or if you have a text message list okay.

Jasmine Star (00:16:52) - But for the sake of the LTV in this conversation, like what we're going to focus on, let's just focus on current customers. Remember we're gonna talk about Tyrone again. Now Tyrone, remember he's our health coach. He could do this by creating specialized weekly newsletters for members, for his clients who are looking to lose weight, improve athletic performance or manage chronic health conditions. Now, by offering personalized guidance and support and speak to them all differently, he not only increases the likelihood of his client achieving their health goals, but also creates long term loyalty and satisfaction. I mean, just think about it. Just think about somebody who's exercising to gain weight and build muscle. You know, they're getting emails from their health coach teaching them ways to shed weight and vice versa. Now, taking these extra steps can make a big difference in your customers results and their LTV. Okay, now let's dive into strategy number two. Offer a subscription or a membership model. Creating a subscription or membership model. No matter if you have a product or service based business man, it is going to help you generate consistent, steady and very predictable revenue.

Jasmine Star (00:17:57) - What I think is like really magical about subscriptions and memberships is that it keeps customers engaged regularly, like and constantly with something they buy one time. That's a one time payment coming out, but with recurring payments, it serves as a reminder to use the subscription or the membership because they're paying for it. It's accountability. Now let's talk about Tyrone, our health coach. Let's see how he could do this. Tyrone could offer a membership for his clients and give them access to ongoing workouts, meal plans, recipes, shopping lists, you name it. The membership could also be a place where he creates community. So by offering a membership alongside his private coaching, he would be able to increase and improve the client results and their LTV. Okay, strategy number one is to segment customers. Strategy number two is to offer a subscription or a membership model. And strategy number three, to increase your LTV is to under-promise and overdeliver. So under promising and over delivering is the absolute best ways to build trust with your customers.

Jasmine Star (00:18:56) - Because here's the thing it's easy to make promises when somebody is considering buying to you. We feel like we must tell them all the things to get them to say yes, but that's rarely true. In fact, research suggests the opposite. Studies show that potential customers typically need 25 to 40% of the information provided to make a purchasing decision. So let's just stop and like think about this, right? Look at what you're currently saying and promising your customers. Then cut it in half. If anything, they should light us up. We don't need to sell everything all at one time. Let's narrow that down to the top 50% that we think is going to make a difference. So don't promise everything and leave some features a surprise. Delight them. You know, it's like you want to overdeliver. So let's talk about this in relation to Tyrone, Tyrone could schedule regular check ins with his clients to discuss their programs, address any concerns, and provide additional guidance for motivation as they need it. But here's the magic Tyrone didn't promise any of these check ins when they were considering buying.

Jasmine Star (00:20:04) - He didn't say everything you're going to get. It's an additional touch that he added in surprise and delight. Baby, he wants to leave these clients feeling like he's going above and beyond and truly. Hears about them in the results, and he does so when customers feel cared for, supported and heard, they remain loyal. Which is, you know what we know increases LTV. Let's dive into strategy number four. Gamify with reward systems.. Okay. I have to tell you, like I used to think that this was so nerdy, whenever people would give me advice on how to increase my LTV with a subscription, they would ask what might we gamify. And I'm like, number one, I was raised in a conservative household and we couldn't ever afford Nintendo. I did not grow up gaming whatsoever. All the other cool kids they had like gameboys, not me. I was out here playing monopoly and sorry, like these games he got from thrift stores. So they're like, gamify your offer. I was like, I have no idea what you're talking about unless we're going to buy boardwalk.

Jasmine Star (00:20:59) - So I will tell you though, research and statistics is right. Gamifying your offer or program with a reward system is a great way to keep customers engaged and loyal, which ultimately increases their lifetime value. Now, to do this, first set clear goals for the rewards program. Then design a structure that offers rewards for different actions like purchases or referrals. And you want to make it fun and game like, right? So these elements could be like you could show like a progress bar, or you could do challenges. Like when we think about this and like how it exists in the real world, I want to use a real example. I think peloton has gamified, working out solo and making it feel like it's a community. So they constantly do these challenges. And then what's the gamified component? Yes, the challenge is the start, but then you can earn rewards and badges and these rewards and badges live in your profile. So people want to collect these digital badges as a way to stick out in the community.

Jasmine Star (00:21:57) - It's crazy. And you would think that's dumb. Who cares? We don't have no stinking badges. Maybe you don't, but a lot of people love them. So when you personalize your rewards to each customer and then they get to promote the program, like, this is how it all works and they feel really great about it. So I want you to listen to feedback because your customers are the ones who are actually playing the game. They're the parts of the gamifying. So getting their feedback is what is going to make it successful. Games trigger the release of dopamine in the brain, which plays a huge role in the brain's reward system. And this creates satisfaction, which is why Gamifying can really help increase your LTV. So, for example, let's talk about Tyrone. Tyrone could create a points based loyalty program where clients earn points for attending sessions, achieving milestones, or referring their friends and family. They can redeem these points for discounts, gifts, or maybe they can get like a free coaching session with Tyrone.

Jasmine Star (00:22:49) - What did we do? We gamified to drive results. Strategy number five upsell and cross-sell yo yo y'all when it's appropriate, encourage your clients and customers to upgrade or purchase complimentary products. This not only increases the average order value, but it also enhances their experience. But what's very important to remember is that you continue to play the long game by building trust. When you're suggesting another product or service to a current customer, think of them like a family member who's about to purchase something. Would you let your mom purchase something that she didn't need? In the same way, I want you to make offers that are truly in alignment to each customer, because this goes a really long way to build trust. Now, Tyrone could do this by offering a done for you meal prep service as an upsell to his current clients. This service could save them time and effort while helping them reach their health and fitness goals, and this could enhance the customer's overall experience with Tyrone's coaching program. Now we're going to pause here. Somebody might have heard this and said, oh, Tyrone is into fitness coaching.

Jasmine Star (00:23:56) - Why would his upsell be like a done for you meal prep program? He's not a chef. No he's not. But do you want to know what Tyrone has? Client Tyrone could do a collaboration, a behind the scenes with a local chef, and this local chef could have a meal prep program. And let's just say, let's just say for simple math, that meal prep program is $100 a week. But this chef is having a hard time getting people to pay him $100 a week. What if Tyrone said, I will pay you $100 for every client I bring to you? And the chef is like, awesome. But we don't know how much Tyrone is charging his clients. What if Tyrone charges his clients $200 a week? Oh, so Tyrone makes $100 profit. The client's happier, the chef is happier, and he just drove up his LTV. Let's go y'all, let's go. Okay, so before I give you the action steps, let's review what we've gone over. LTV is a metric used in business that represents how much revenue a customer brings in over their entire relationship with you.

Jasmine Star (00:24:58) - Now we have covered how to calculate LTV, which is using the equation LTV is your rpu your average revenue per user times the average lifespan, how long they're with you times the gross margin percentage. Now we also covered. Strategies for increasing your lifetime value for your customers. And that was number one customer segmentation. Strategy number two was to offer a subscription or a membership model. Number three was under-promise and overdeliver. And strategy number four was to gamify with reward systems. And lucky strategy number five is to upsell and cross-sell current customers like that. Your family. Okay, finally, your next action steps for this episode. Number one is to calculate your LTV. Like literally. Let's stop here. If you tell me that you're willing to do this, you can send me a direct message on Instagram. Or for all the brave folks who hang out in YouTube, leave it as a comment. I literally when you show your taking action, it shows that you are not messing around about your business and it's almost like a beautiful documentation.

Jasmine Star (00:26:00) - Because what if your LTV right now is $10, $100, $10,000, $1 million, whatever that number is, the better you get at increasing your LTV. I want you to come back and look at that number and think, wow, I've come really long way. Number two, action item is to create a new three month LTV goal. I have to tell you, in February, in early March, I had closed a launch for a course offer. In this course offer, the LTV from that course would have been the total cost of the course, which was $2,000. But what we decided to do is at checkout is do an upsell before they meet their final transaction. They had the opportunity to pay $399 for an upsell bundle. What we just did was increase LTV from $2000 to $2399. That simple shift really was pushing our growth and we had never done it before. So I'm literally practicing what I preach. Now, the third action item is to choose one of the five strategies to implement to help you reach your three month goal.

Jasmine Star (00:27:06) - What is your three month goal? Pick one of the five. Now let's go out and get this thing done. Now, if you have gained even one thing from this episode, I would love for you to snap a picture of what you're doing, where you're listening. However that happens, and you can tag me on Instagram Stories or here in YouTube. Like let me know who you're at, what you're doing when you do this, when you engage with me, when you show how you're doing it, it really does make a big impact. Here's why this podcast isn't monetized. Maybe in the future we'll get to that. But right now it is just purely a labor of love. And for the last four years, the business that is Jasmine Star has absorbed all of the costs, has absorbed the cost of our sound engineers, absorbed the cost of our lights and cameras and these very fancy easel that my daughter we got off Amazon. You know, it's like that all comes with something. And so if we were to have an agreement like a gentleman or a gentlemen's agreement, I heard another podcast host use that term shout out to Sam part.

Jasmine Star (00:28:01) - If we have an agreement and you get to learn one thing, then leaving a review or subscribing to YouTube would be the best way to help us continue to produce more episodes. The only thing I ask is a little subscribe or a review. Thank you for listening to The Jasmine Star Show. It is an honor to be Professor Jasmine for the last, I don't know, half hour or so. Thanks guys for listening. Have a great day!