The “Secret” formula for Lifetime Customer Value is known to less than 1 in 100 internet marketers.
As they say, Knowledge is Power, so pay attention because this could very well give you the edge you’ve been looking for.
Also known as LTCV in the network marketing industry, it is the actual value of each rep you recruit into your business opportunity and it’s important for two reasons.
- You need to know where you are at before you can determine where you are going. Knowing your lifetime customer value will give you a baseline number that you can use to effectively track the results of your advertising campaigns.
- If you don’t know your LTCV then you don’t know what each new rep is worth to your business and you have no idea how much you can spend on marketing to get that new rep.
Most people make the incorrect assumption that any instant or immediate commissions you earn when a new rep signs up is what your ROI (return on investment) is for any paid marketing or for a specific advertising campaign, funnel or source. That is only your initial ROI and not even close to what your actual lifetime customer value is for each new rep who signs up.
Your specific lifetime customer value is based primarily on your company and its compensation plan but the popularity, product quality and retention among reps will all play a big part in your LTCV.
There are 2 ways you can calculate your lifetime customer value. If you have been with your company for a while and have recruited several reps then you have a history that you can work with. If you are new and don’t have any numbers to work with yet then you will need to use projections or estimates. I’m going to use myself as an example for each method of calculation.
Method #1: Calculating Your Lifetime Customer Value Using Existing Numbers
I have been with Empower Network for a while now. I’ve earned about $130,000 and sponsored about 200 people. Using this method we only need those 2 numbers. It doesn’t even matter what the retention rate is for the average rep. I would simply divide $130,000 by 200, which comes out to $650. My lifetime customer value with Empower Network is therefore $650. That means every person I recruit into this business will pay me an average of $650 over the lifespan of their membership.
Here’s another example using Traffic Monsoon, which is not network marketing at all but a single tier affiliate program. I have only been with Traffic Monsoon for just under 2 months but I still have some numbers to work with. Enough that I can determine my current lifetime customer value so I know how much I can spend on marketing to get more referrals.
My total affiliate commissions after 51 days is $1209.47 and I have 19 active referrals. So, I divide 1209 by 19 and get $63.63. Just so you know, this LTCV will go up. We’re only looking at 51 days of history here and I will continue to earn affiliate commissions every week from these referrals.
Method #2: Calculating Lifetime Customer Value Using Projections
I’m going to use MLSP for this example because I haven’t been with them long enough to have a decent history. All I can do is estimate based on the compensation plan and what I’ve seen and experienced so far.
First you have to look at what the average sale or commission is per rep or customer. Then you have to estimate or ‘project’ how many reps you think you will get and how long the average rep stays in.
MLSP has 2 different membership levels. One is $50 a month and the other is $150 a month. I’m at the higher level so I get higher commissions. That will definitely help my overall LTCV. I know that one in five people who join MLSP will join at the Mastery level, the one that’s $150 a month. I earn 30% commissions on the $50 and I earn $100 on anyone who joins at the Mastery level. Both are monthly residual commissions.
The retention rate is different for each membership level, as you might guess. People who choose the higher level to get access to more tools and more advanced training are more serious so they stick around longer. I will have to use an average between the two just like I will have to use an average for the commissions. That’s not difficult to figure out.
I estimate the retention rate for University level members ($50 a month) is 6 months. It’s probably longer but I like to be conservative. For Mastery members I’m estimating 2 years. The average then will be 1 year.
If I sponsor 4 people a month for one year, that’s 48. To make this easier to calculate, I will round up to 50. Remember, one in 5 joins at the Mastery level. So, 45 people pay $50 a month and I earn 30% or $15 a month from each one. 5 people join at the Mastery level for which I earn $100 a month. 45 x 15 is $675 and 5 x 100 is $500 for a total of $1175. That would be my monthly income so I need to multiply that by 12 months to get a total based on the average retention rate. That comes to $14,100. Now I need to divide that total by the number of reps I sponsored which is 50. That gives me a projected lifetime customer value of $282.
Keep in mind that what I just calculated for my LTCV with MLSP is based only on monthly membership fees and the commissions I earn from that. There are other ways I can earn commissions with MLSP from these same people or even from people who purchase products (mostly lead generation training) but who never join MLSP. Your business may also have additional income streams available. I suggest you just keep that in the back of your mind and maybe add something to your estimated lifetime customer value.
Okay, now that we have our lifetime customer value, what does that mean exactly and how can you use that value to your advantage?
That LTCV is what every person you recruit is going to be worth to you for as long as you and they are with your company. You can use that value to determine how much you can comfortably spend to get one person to sign up for your business opportunity.
I want to emphasize something I mentioned earlier. If I were like most people and I used the initial amount I earn when someone joins then I would really be cutting my advertising short big time and I may never see any profit.
For example, if someone joins Empower Network and buys the blogging system for $25 and stops there, I would earn a $17 commission. If I assume that means I can afford to spend $17 on marketing to get one person to sign up then I would be way off, right? My lifetime customer value with Empower Network is $650. That means for each person I recruit, I earn an average of $650. Realistically then, I could say it’s safe to spend $200 on marketing to get one person to sign up and I would still have an ROI of more than 300%.
Knowing your lifetime customer value can also help you determine how strong or weak your company’s compensation plan is going to be.
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