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The Tax Accountant Should Calculate Lifetime Client Value

from TaxCoach™ Briefs
Volume 1, Number 24 — November 9, 2006

by Edward A. Lyon, JD

I'm a big believer in testing and measuring, both for us, and for the tax accountants who are our subscribers. Here at TaxCoach, we test ad headlines and sales copy to see what attracts subscribers. We measure results from every one of our marketing campaigns to determine our cost per subscriber. But our most important measure, which I update myself at least weekly, is lifetime subscriber value. That tells us, in a single figure, how valuable you are to us and how valuable we are to you.

We spend a lot of our marketing dollars on Google pay-per-click ads. We know exactly what it costs to acquire a subscriber, and how long it takes to amortize that cost. Measuring results gives us the confidence to pay Google to acquire visitors.

Of course, not all efforts pay off so quickly. We've bought banner advertising from several accounting and financial-planning sources. In one case, we spent $500 to attract just 39 visitors. Measuring gives us the confidence to walk away from those outlets with no regrets.

As a tax accountant, you can use testing and measuring in your business as well. Knowing your customer value will give you confidence to invest in marketing your business, secure in the knowledge that it will pay off, even if it takes time. Measuring just the immediate worth of a new client's tax prep fee, for example, shortchanges his real value to you. The opportunities generated from having landed that client may contribute to a 'lifetime value' for him far greater than the immediate value.

Let's say you spend $100 to advertise in your daughter's school musical program, and you attract a new client for a $300 tax return. That's a 3-1 return on your investment. Not bad, right? If I could go to the casino and bet $100 with the guarantee that I'd win $300, I'd do it all day. Every day!

But the real return on your $100 investment should be far more than that $300 tax return. If you offer bookkeeping and write-up service, you might get that work. If you offer QuickBooks consulting, you might get that work. If you do a good job, you'll get that work year after year after year. If you treat your clients right, their business becomes an annuity.

If you offer financial-planning services, you might get their insurance or investment business. You can earn thousands in commissions today, plus more annuities from asset-based management fees.

If you ask them, properly, you'll get referrals. Those referrals may bring a tax accountant a wide variety of work: tax planning and preparation work, bookkeeping and write-up engagements, and QuickBooks consulting fees. They may bring you investment and insurance business.

The lifetime value from that single customer might total $10,000 or more. If I could go to the casino and bet $100 with the guarantee that I'd win $10,000, I'd never leave!

We tell tax accountants that a single client can pay for a year's worth of TaxCoach service. But the truth is, a single client can pay for a lifetime's worth of the service. Calculating the lifetime value of a client gives you a tool for evaluating all of your marketing efforts and a measure of confidence to invest what it takes to grow your business as fast as you like.

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