If you’ve been following my Rainmaking blogs, you know that much of what we talk about is developing relationships that ultimately lead to becoming a trusted business advisor to both potential clients and referral partners. Why is it so important to engage in Rainmaking and pick up that next client? Well, aside from the obvious reason – that it leads to cash today, it will also likely lead to cash tomorrow. Once we build a relationship with a customer and provide good service, they will generally become a repeat customer and/or a good source of future referrals.
Customer Lifetime Value
This is where the concept of “Customer Lifetime Value” or “CLV” comes in. According to Wikipedia, in the technical sense, CLV is a prediction of the “net profit attributable to the entire future relationship with a customer”. The term is used mostly in marketing to determine how much to spend in acquiring a client and whether that money is well spent. For instance, if, by using a formula to calculate the CLV of an average customer, we determine it’s $10,000, and the marketing costs associated with securing or engaging the client are $5,000, then the customer is judged to be profitable. (Note that the $5,000 of cash outlay is also known as “cost of customer acquisition”.)
As with other economic tools, there are several models and formulas for customer lifetime value – ranging in sophistication (those at the higher end including net present value analysis, churn rates, etc.). Or the calculation can be simpler and not take into account all the various cost variables. While the more sophisticated models may pinpoint the costs better, even the simple concept can help a business assess the value of spending money to acquire a client.
Rainmaking and CLV
In relation to Rainmaking, I introduce the concept of CLV in order to get you thinking about the overall value of acquiring just one new client and the value that might bring to you or your firm. It might put into perspective (and justify) the effort (both in terms of time and money) you put in today to do the Rainmaking work to get that next client. So much of this is about being steady in your efforts over time and having the right mindset. Thus, if you invest a little bit of money and a few hours of your time (valued either at your full chargeable rate, or your actual salary), will it be worth it to learn the skills to gain that next new client? Unfortunately, sometimes it can be hard to judge, but sometimes an example can make it fairly clear.
Assume you invest money in taking a Rainmaking seminar, plus you spend 4 to 5 hours attending it and doing the prep work. In that time, you learn how to identify your target market, you spend time determining where you might find them and how to reach out to them; you learn strategies to reach them, and then finally, you learn and practice a system to continually draw leads into your pipeline. Let’s say that, all in, that’s a true cost of between $500 – $750. If you picked up just one new client – chances are that your revenue from that client would exceed that amount in just the first year alone. Then, extrapolate that to 3 or 4 years, and you’ve definitely made a good investment. And that’s just one client!!
As I’ve said many times in my blog and in my classes, mastering the Rainmaking strategies won’t happen overnight. It takes some work. But if you’re willing to make some investment and try a few new things – particularly around your results tracking, you’ll find that the investment will pay off quickly and long into the future. What’s your CLV? Calculate it. It might surprise you!
