Knowing the lifetime value of your members
How much should you be spending on your marketing?
The simple answer is: spend less on acquiring each new member than you will generate in profit over the lifetime of their membership.
You knew that. But in case you missed it, the key word there is lifetime.
You probably won’t be profitable in your marketing spend on month one of a new member acquisition.
Most likely, you’ll lose money on each new member for a few months. But eventually (on average) you’ll make your profit.
In marketing, we use a term called Customer Lifetime Value (LTV), which is the average profit you will earn per customer (member) over the lifetime of your relationship.
When you first open your coworking space, you won’t know what your customer lifetime value is. You’ll be guessing.
Over time, you’ll have enough data to be able to make a better judgment call on what that value should be.
I recommend that you average out your calculations over a year or more. If you don’t have enough data, make your best guess but keep it low and conservative.
There are a lot of complicated ways to measure LTV, which are easily Googled (but harder to implement).
For now, you just need an approximation. Once you spend serious money on your marketing, then you can get fancy with your formulas.
Tomorrow we’ll talk about Allowable Acquisition Cost, which is how much you can budget to acquire each new member.
Your Allowable Acquisition Cost should be MUCH lower than your LTV. If the numbers are even close, you’re spending way too much on your marketing (or you have a retention problem).
For now, your homework is to come up with a figure for your LTV and report back to me about how you came to that number.
If you do, I’ll give you some additional pointers on how to apply that to your marketing spend.
