The Phenomenal Potential Lifetime Value (PLV) of a Client

The Phenomenal Potential Lifetime Value (PLV) of a Client

In his book The Facts of Business Life, my friend Bill McBean says a business owner’s first responsibility is to protect its assets. Not just the assets on the balance sheet, but your client base as well.

My good friend and marketing master David Frey says, “The money is in the list!” Not just the number of people on the list, but the quality of the list and the quality of the relationships you’ve developed with them.

Have you ever thought about the value of your list? Have you ever thought about the potential lifetime value (PLV) of a single client? This exercise will astound you, and from this moment on you will have a greater appreciation for your clients. Far too often, a customer’s value is judged by a single transaction rather than their long-term value. They bought a low-priced product or did a minimum job, so you’re tempted not to market to them. Big mistake. They may have just been trying you out.

Many years ago, when I was first starting out in my first business (an in-home service company), I was the only employee and had no training in business. I quoted a very low minimum charge over the phone, assuming it was indeed a “minimum” job. Upon arriving, I realized I had totally underpriced myself for the project. Instead of making excuses, I smiled and went to work. After all, it wasn’t the client’s fault that I didn’t have a good pricing system! Turns out the client was the facilities manager for the largest branch banking system in Texas at the time, which, the following day, became my biggest account. I made a lot of money from that bank for many years. Had I made excuses and judged her based on how much money she spent with me on that first project, I would have never gotten the big account.

Take a moment to jot down the average amount a single client invests with you each year. Now multiply that by twenty years. Example: Let’s say a single client invests $2,000 per year with you. Twenty years x $2,000 = $40,000. Now, multiply that number by the number of referrals you could potentially get. Let’s say it’s just two per year. That’s an additional $80,000 in potential lifetime value, giving you a total potential lifetime value of $120,000!

This is how you should look at the economic value of a client (while also remembering that they are human beings who should be treated well). Are you planning on being around for twenty years? By the time you get this book, I will have been in business for more than thirty years. Protect your assets. The most valuable asset is your client list. When you sell your business, the predictable income is probably going to be the biggest factor. And by the way, if you teach your team to value customers at this level, will it make a difference in how they see them? You bet it will.