What's the lifetime value of a client?

Have you ever heard the saying: You’re only as strong as your network? What about: Referrals are the key to a thriving business?

Well, both are true, and it is highly likely that the top producers in your area do a phenomenal job at nurturing those relationships.

Think about your current and most recent clients. How did you treat them individually? Did your services differ based on price point? Were you or are you more accessible to your higher-end clientele than your lower-end?

What if there was a way to assess just how valuable each client was based on a few key metrics? Metrics that would have you rethink (or at least ponder) how you are running your business.

Entrepreneur and CEO of Adwerx Jed Carlson seeks to do that with the creation of the Lifetime Value (LTV) Calculator. In this (free) hub, agents can input information about a client or a segment of clientele through pre-constructed formulas and gain insights into just how valuable their client base is.

Changing the game

“What I like about the lifetime value calculator is that it makes you think about a client more than just as a single-transaction paycheck,” said Alison Domnas of 501 Realty in Durham, North Carolina.

“So many times I think agents do that, and it’s a mistake. The main import of the calculator is to consider the future value of those clients, and I think that makes you take better care of them during their present transaction.”

Alison Domnas

“For example, I was referred some clients that had to put their faith and trust in me to buy a house sight unseen here in Durham,” Domnas said. “It’s a modest little cottage, and they paid around $150,000 for it. However, they had such a good experience with my representation that not only have they referred me around $750,000 in business over the last two years, they’ve become great friends as well.

“Real estate is like that; you don’t know who your referral machines are going to be, so you have to treat everyone the same.”

Domnas makes a valid point — treating everyone with the same great services is the consistency current and aspiring top producers need to create a thriving business season after season.

What could be

When I sat down to chat with the creator himself, his viewpoints followed a similar vein:

Jed Carlson

“When we asked a typical agent: What is this client worth to you? It was a calculation very much around that one specific transaction,” Carlson said. “Whether commission to be made after tax or the number of hours invested in working with them [clients].

“If agents don’t understand or realize the full value of that person, it can result in sub-optimal results. The goal of the LTV Calculator is not meant to be an exact prediction of what will be but instead open the eyes of the real estate agent on the lifetime value of the client for what could be.”

[Tweet “The goal of the LTV calculator is to show what the lifetime value of a client could be.”]

Some of the factors the calculator considers include:

• Age of client
• Average years in home
• Average home price

A few other metrics

After spending 20 to 30 minutes inputting various numbers for different clientele of my own, I was surprised by some of the results.

Not only were my clients’ projected values higher than my initial assumptions, but the findings also made me wonder how exactly could I tap into their value to ensure it reached its full potential.

Sure, there are a number of ways to stay in contact with someone, but maybe this becomes a conversation starter among us all on best practices. If you knew what the lifetime value of your clients could be, what would you do differently?

An interesting comment Jed made instantly switched my thinking. “According to NAR [National Association of Realtors], over 60 percent of a professional’s business will come from someone in their sphere. So when talking about the lifetime value of a client, you’re really talking about the lifetime value of their network if you can tap into it.

“Instead of thinking about your portfolio of business as a client list, think about it more as a portfolio of spheres — spheres that are connected to any number of circles and can operate as huge referral engines.”

[Tweet “Don’t think about your portfolio as a client list; think about it more as a portfolio of spheres.”]

Time will tell just how useful this calculator will be. It’s at an early stage of development, and there could be future applications for this program. For now, though, it has proved to be a nifty tool that I’ll definitely be sure to bookmark!

“If anything, it at least opens eyes and gets a conversation going about best practices,” Carlson said.

Check it out yourself and leave your thoughts below. What benefits do you think the LTV Calculator can add to your business?

Anthony West is a real estate agent, the founder of The Luxury Life KC at Moffitt Realty, and an entrepreneur in Kansas City.

Email Anthony West.