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Today’s episode is about calculating lifetime value of a customer. We work really hard to go out and find leads and then convert those leads. Those leads are money as we spend our marketing budget on places like FB, Google PPC , mailers or whatever. This episode my goal is to get you thinking about long term instead of short term.
Here is the spreadsheet
Client-Lifetime-Value-Calculator
I want to give you fair warning. This episode may be a bit tricky to get your head around especially because we are going to be doing some math. I have built a spreadsheet that you can figure out all the math we will be talking about in terms of calculating lifetime value. Go to the site www.superagentslive.com and look for episode #59 and go to the show notes. You will find at the top of the post the tool that you can put in your values and play with the numbers.
OK —Here we go. Do you know the lifetime value of your customer? My guess is that you do not. I know this because very few of you are even tracking your activities. You probably dont know how much each lead costs. And if you dont know how much each lead costs you dont know your ROI–on your marketing efforts. I am not going to get into that as its a whole different episode.
On a high level. The lifetime value of a customer is how much that customer is worth during the life of your relationship. When you sell a house you will make a commission—lets say that commission is 5K. Is that all you can expect from that transaction? Can you expect to sell that person another house? Well–according to NAR people move on average every 9 years. So–if you do your job right and continue to stay top of mind with that person he or she will move at least 2 more times–right? So if you do your job right you will be able to capture that person as a seller (not to mention the buy side) 2 more times–that equates to another 10K–assuming they buy the same size house. So now the real value of that customer is not just the original 5K but, we can add on another 10K for a total of 15K if we can stay top of mind. Hey–this is looking pretty good because you originally found this person knocking on doors in your farm but, wait–is that all this relationship is worth? No—-probably not—if this person moved every 9 years and you have continued to stay top of mind with them isnt it probable that during those original 9 years they would refer you to their friends and family? Of Course it is–how many times? Lets say conservatively—they refer you once every 2 years–that is another 4 deals every 8 years or 8 deals every 16 years—again–we are taking a lifetime approach and looking way down the road–so If we do the math—thats an additional 8 deals at 5K a pop equaling 40K in referals and we can add that to the original 15K for a total LTV of 55K.
Whew!! Dont worry–I am going to unpack this for you. OK–Here is the formula –Take your average commission 5K in this example and multiply it by a repeat multiplier–how many times will that person move? You then multiply that by a referral multiplier. Again–you can find the spreadsheet explaining this on the site superagentslive.com.
You might be saying—Toby do I really need to know this; wont this just come natually. If there going to do repeat business or refer me they are going to do it. I will say yes and no–Here is why this is so important to know. Let me ask you a question. You have 1 time slot available on Friday at 9am. You have 2 prospects that tell you —yes I am going to list my house with you but, I only have Friday at 9am available. Got it–you have to make a decision. One person has a 600K house and he is a traveling salesman who is gone 50% of the time- and the other person has a 400K house but, the wife is the head of the PTA and the man is the head of the neighborhood watch? What listing do you go take? If your short term—have limited vision you go and take the 600K listing but, if you correctly understand LTV–you will obvisously go and jump on the smaller listing as they have much deeper roots in the community and an engage network. Do you see how understanding this can help drive your marketing strategies?
Let me reiterate 2 things that I want you to keep in mind. There is a repeat multiplier –that is how many times will that person buy another house and there is a referral multiplier–that is how many times that person will refer you.
OK—A few weeks ago I did an episode on marketing to millenials. Now understanding LTV which market would you rather go after–upwardly mobile millenials or baby boomers looking to downsize? If you take into account both metrics–the repeat and referal metrics you will come to a conclusion on where to spend your marketing dollars and where to spend your efforts. Again—I will not go deep into marketing as thats another show–by the way–if you want to fine tune your business I am taking on one more private coaching client–if your interested drop me an email and we can chat and see if we are a fit.
OK—lets break down these metrics. Can we as agents —can we increase the repeat metric? No–we cant make or incent people to buy houses more often but, we can heavily influence the referral metric. Lets dig into how we can get way better at that. Last solo show I talked about lead generation and lead gen is super important but, there is also something called awareness marketing. This is money we are spending to stay top of mind with our clients and future clients.
Here are some stats and all of these are from NAR:
66% of people hire the first agent they meet
92% of people are using the internet in their search for a home
People are spending an average of 2 weeks researching real estate before contacting an agent and lastly
It takes people seeing your ad or message 7 to 10 times before they call you
So how do we use these statistics to increase our referral metric? Its awareness marketing–its all that stuff we do on FB, on Linkedin, Google + and twitter————we take all that stuff and combine it with being an overall good agent—giving great service, giving them a wow experience going above and beyond the call of duty and dont ever be afraid to just ask for a referral.
Again–There is a lot of stuff here and I dont want to get into marketing. I wanted to do this episode to illustrate LTV and how you can shape your business into a real referral business by understanding LTV and then crafting all your efforts around a long term view of your business instead of a short term perspective—I would encourage you to be client centric instead of deal centric.
Well–guys–I really hope you got something out of this episode. Im very close to wrapping up the mastermind membership site as well as, the lead generation product which I am doing a rollout by offering the product this month for $97 dollars and increasing the cost 100 bucks every 30 days——-it will cap at 495. So if you want 10 hours of audio on lead generation you better grab it now as it will never be this cheap again. Just send me an email to toby@superagentslive.com–until next time go out –be passionate and make your dreams come true.
