How To Use A Value Ladder To Visualize Your Customer’s Lifetime Value To Your Company

How To Use A Value Ladder To Visualize Your Customer’s Lifetime Value To Your Company

The first day I met my wife, I had butterflies in my stomach. I couldn’t help but think of what was possible.

Did she find me attractive? Could this go somewhere? Am I funny enough? There were a lot more questions than answers.

The only thing I knew for sure was that if I asked her to marry me on day one, I would have ruined everything, for her and for me.

Some of the same social constructs happen in business. In most cases, people aren’t going to buy your most expensive product or service the first time they see your ad. But they might be interested in a free or low-cost option. Then you can overdeliver, earn their trust and enter into a mutually beneficial relationship.

That’s where the value ladder comes in.

A value ladder is a strategic map that helps you move a client or customer from “I had no idea you existed” to “I don’t know what I’d do without you.”

It enables you to deliver value at each stage of your customer’s journey.

In other words, it’s the series of dates before the proposal. It’s popcorn before the champagne. And it’s the first step we study when advertising your business.

Here’s why.

Let’s say you’re a dentist. Imagine spending $10 in advertising to bring in a single patient.

When they arrive, you clean their teeth for free and they walk out the door.

“Alright, have a great day!”

For every $100 you spend on advertisements, 10 people come in and 10 people walk out the door with cleaner teeth. You make $0.

What a terrible business model. The ad agency sucks. You’re wasting money.

Or maybe not. It could be that this dentist understands that most of her profits will come on the backend.

She knows that for every 10 people who come in for a free teeth cleaning, 5 will need fillings, 2 will need a root canal and 1 (if it’s me) will need a root canal and crown.

An example of a dentists' value ladder. This is a line graph with an upward facing arrow. The illustration shows the progression of services, starting with free teeth cleanings, progressing to fillings, then a root canal, crowns and the highest profit-producing service, cosmetic work. This graph shows that the price increases concurrently with the higher quality of service

It’s a numbers game. She simply needs to get patients in the door.  She can then earn their trust, provide a great experience and offer higher-profit services on the backend.

Bada-bing, bada-boom. That’s how spending $100 in advertising earns you $4,000+ in profit.

The value ladder will help you visualize a path of service/product continuity. What matters the most to your business is the lifetime value (LTV) of your average customer. Once you understand this concept, it opens up a new world of possibilities.

If your average customer pays you $100 per month and stays with you for 5 years, they’re worth $6,000 to your business. If you spend $250 in advertising to get $6,000, you’d love that return on your investment. Right?

If you don’t know what the LTV of your average customer is, then you don’t know how much you can spend to acquire one. This is a problem when determining your marketing budget.

On the other hand, if the LTV of your average customer is $1,000, then you can confidently say that you are looking to invest 10%-50% of that into customer acquisition.

A value ladder line graph with an upward facing arrow. The illustration shows the progression of services, starting with the bait, advancing to a frontend product or service, then middle, backend and ends with the most significant, profit-producing product or service

Any business in any industry can benefit from this concept.

In some cases, you may only sell one or two things. A value ladder will help you develop a frontend, middle or backend product/service if one does not exist. Or it could help you visualize how to get people in the door.

Without a value ladder, it’s sometimes difficult to determine how to market your business long-term. With it, identifying gaps and building strategies to help you overcome them is clearer.

This is why it’s the first step in the first phase of our advertising matrix.

 

A three-phase, 9 step map that helps people find and target their audience, bring people in the door and convert clicks into customers

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