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4. What is each customer worth? How much does your average customer spend with you? At first, I found this difficult to calculate because my customers range from a $9 e-book to $1,000s of dollars each year in coaching. In addition, I receive passive and residual income from my customers which comes from their use of products and services I recommend. But then I looked at my accounting program and simply took my total income for
year and divided it by number of clients. This showed me that my average client spent $259 in 2004.
5. Calculating value of your leads. Here is formula to calculate value of your leads:
Value per lead = value per customer ÷ number of leads needed to generate 1 customer.
In my case, my accounting program for 2004 showed an average expenditure per customer of $259. In my own case, I believe that 1 out of every 25 signups will result in a sale.
Value per lead = $259 ÷ $25 = $10.36
In my case, each lead I generate should bring me $10.36 in sales.
5. What about profitability? If I spend $10 to generate $10 in sales, I don't make any profit and I haven't covered my costs of operating.
If I assume that I currently make $5 profit on a $10 sale, I might want to set a target of paying a maximum per lead of $2. This way, on a $10 sale, my total cost including cost of lead plus cost of product is $7, leaving me a $3 profit.
In my case, my actual costs in 2004 were only 37% of my sales, so I could afford to pay even more, but $2 target seems a good one for me to work with. Fortunately, it is easy for me to generate all leads I need for less than $2 each through various types of advertising available.
