How To Calculate Your Average Customer Value (And Why It Matters)

Your competition is guessing.

Maybe you are too… but by the time you finish this article you’ll be guessing no more.

Start calculating these two formulas and it’s game over for your competition.

NOTE.  You can download an Excel Document that will calculate this for you at the end of this article.

Most marketers guess how much a customer is worth.  They guess how much they can pay for traffic.

Successful digital marketers make calculations.  Then… they adjust based on data.  They adjust based on math.

We’re not talking advanced math either.  These are simple formulas you can apply RIGHT NOW that will take all the guesswork out of your marketing. Successful digital marketers monitor these two metrics…

  1. Average Customer Value (ACV) – Tells you how much a customer is worth.
  2. Average Visitor Value (AVV) – Tells you how much you can pay for a click.

Here’s how to apply this to your business

In just a minute we’ll look at a concrete example…

But first… make sure you understand the system.

At Digital Marketer we use (and teach) a system called Customer Value Optimization (CVO) .

We use this system for every business we start, acquire or consult… including this blog we’ve grown to over a million dollars a month in sales .

Your goal is to be willing and able to spend more than your competitors to acquire customers.  If you can do that… you win.

Here’s an example in the information marketing space…

A weight loss/fitness blogger has built the following funnel,

In the example above the marketer has the following funnel metrics,

  • Tripwire Offer – The Tripwire is converting 5% of new leads to customers.
  • Core Offer – The $100 Core Offer is converting at 30%.
  • Profit Maximizer – The $300 Coaching offer is converting at 10%.

The smart marketer asks two questions after looking at these numbers…

  1. How much is a customer worth? (Average Customer Value or ACV)
  2. How much can I pay for traffic? (Average Visitor Value or AVV)

Calculating Average Customer Value (ACV)

This is about IMMEDIATE Average Customer Value (ACV)… not Customer Lifetime Value.

Customer Lifetime Value has its place but this isn’t it.

This is about measuring the IMMEDIATE impact that a specific marketing funnel is having on the business, because unless

you’re sitting on a giant pot of cash you simply can’t afford to wait a “lifetime” to recoup your acquisition costs.

Here’s the formula for calculating ACV…

Tripwire Price +  (Core Offer Price * Core Offer Conversion Rate) +  (Profit Maximizer Price * Profit Maximizer Conversion Rate) = Average Customer Value (ACV)

Here’s what it looks like for the example funnel above…

$7 + $100(.3) + $300(.1) = $67 Average Customer Value

In this example, every time you sell a $7 Tripwire Offer… you make $67 in revenue.

In other words, you can spend $67 to sell a $7 offer WITHOUT having to go negative!

Do you see the power knowing this number will give you over your competition?

But we’re still not finished…

Calculating Average Visitor Value (AVV)

Now that you know what a customer is worth… you can calculate how much you can pay for traffic.

This is how you dominate your market.  Your competitors are guessing how much they can pay per click… you have data.

Here’s the formula for calculating Average Visitor Value…

Average Customer Value (ACV) * Tripwire Conversion Rate = Average Visitor Value (AVV)

Here’s what it looks like for the example funnel above…

67 * .05 = $3.35 Average Visitor Value (AVV)

This means that you could spend as much as $3.35 per click without going negative.

The “Dependency” Clause

In some funnels it won’t make sense to make an offer unless the prior offer was purchased.  In other words, some offers in your funnel may be DEPENDENT upon the purchase of the prior offer.

Furthering our example from above — if the $300 Coaching Offer is only made to a customer that purchases the Core Offer — the formula for calculating ACV will change.

In this case the formula will be…

$7 + $100(.3) + $300(.3 * .1) = $46 Average Customer Value

Notice the difference in calculating the value of a customer that buys the Coaching Offer because this offer is dependent upon the purchase of the $100 Course.

Here’s the takeaway…

Where possible, create offers that are relevant to the prior offer in the funnel but not dependent.  Creating dependencies in your funnels will reduce Average Customer Value… and your bank account balance.

So what do you think?

Did you find this post helpful?

Post a comment below and let’s talk about it…

Source: www.digitalmarketer.com

Category: Forex

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