How to find the LTV of your clients

“LIFETIME VALUE!”

You’ve heard about it, you know what it means, and you know why it’s important… But do you know how to find the lifetime value of your own clients?

Or, if you already know it, do you know if it’s correct?

(And if you don’t know what lifetime value is, it’s exactly what it sounds like. It’s the average amount of revenue you can expect to get from a client throughout their time with you. It’s also commonly referred to as LTV, which is how I’ll refer to it in the rest of this post.)

I’m going to share two quick and easy ways to figure out the LTV of your clients. LTV is one of the most CRUCIAL pieces of information you need to know as a business owner. It makes every decision you make—from operations to marketing to hiring—straightforward and simple. (And I’ll explain why in a minute.)

Why am I discussing two different ways? Because chances are, you fall into one of two situations. And I have a method for each.

The FIRST situation is: Your business is brand new, you’re setting your prices, you’re figuring out who your clients are and how you’re going to get more.

If you’re in this stage of your business, it’s pretty tricky to know the LTV of your customers because, well, you don’t have any customers yet! So instead of looking at what you’re currently doing, let’s look at what you want to do…

Ask yourself these questions (in order!):

1. How long/often is the average patient going to be coming to me?
2. How many patients can I reasonably see in one day (or week, month)?
3. How much money do I want to make?
4. What price should I be charging to hit that goal?

If you can get some good estimates on those numbers, you’ll be able to come up with a pricing model that is guaranteed to work. Instead of pricing your services based on the market, price them on how much you want to make! As long as you can sell it, it’ll work. And with that pricing model, you have an initial estimate for the LTV of your clients.

(One quick note: you should also be thinking about any potential PACKAGES you can offer your clients, how much you could charge for them, and how that would affect your revenue. That’s an easy way to get more consistent numbers—as opposed to guessing how long a client will stick around.)

Okay, on to the SECOND situation: Your business is already up and running, you have clients, you’re making money…but you don’t know the average LTV of your clients. Here’s how you can get up to speed.

First, you need to set up some systems. If you don’t have a CRM—get one. Fast. You need to start tracking how long each patient is sticking around, how much they’re paying each visit, and how you acquired them.

You can even start this by taking notes on each patient. You may also want to hire someone or outsource this work—there are plenty of experts out there who specialize in collecting and analyzing this type of data to give you essential insights.

Once you have that info, the final key to the puzzle is to do a simple calculation: [average revenue from a client] – [average cost to acquire a client] = [average LTV]

The cost to acquire is key—we often forget about how much it costs to acquire leads and then convert them. If you don’t take this into account, your LTV will look way higher than it actually is! (I don’t need to tell you why this is problematic.)

Got it?

LTV is such an important metric to understand and measure. It will help you make the right decisions in nearly every facet of your business. All you need to do is ask yourself, “How many clients do I need to get to make this work?” and the rest will sort itself out.

Find it. Track it. Measure it. Analyze it.

(And let me know your thoughts below!)