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Why IT consultants need to make LTV and COCA much higher priorities

May 30, 2014

Guest blogger Josh Feinberg from SP HomeRun provides small business tips for IT consultants.

Most IT consultants want their businesses to grow, but ignore key metrics. Learn why lifetime value (LTV) and cost of client acquisition (COCA) matter.

If you’re a sports fan of any team whatsoever, you’re keenly aware that certain stats or metrics really matter for which athletes and which team are the true standouts. For example in baseball, fans scrutinize batting averages, RBIs, ERAs and home run totals.

IT consultants also have some really important stats and metrics to keep a pulse on, so their companies maintain healthy growth. In this article, we’ll look at lifetime value (LTV) and cost of client acquisition (COCA).

Average Client Lifetime Value (LTV)

Lifetime value is simply what your average client is worth to your business over the lifetime of their relationship with your company.

Many IT consulting firms have a broad mix or portfolio of clients. Some of their clients are insanely profitable. Other clients are marginal at best.

But overall a company’s LTV is a very important number to get a handle on to guide your growth strategy.

What does LTV look like for a typical IT consulting firm?

For many, it’s simply the sum of Project Revenue + (Monthly Recurring Revenue x Average Retention Length in Months).

So if an IT consultant usually sells an initial $50,000 project, followed by a $2,500 per month services agreement, with an average retention length of 36 months, the lifetime value is:

$50,000 + ($2,500/month x 36 months) = $140,000

Cost of Client Acquisition (COCA)

If a client’s  worth to your company is $140,000 over three years, how much can we afford to invest to acquire that client? It really depends on growth goals.

However as a starting point, calculate what you’re currently spending to acquire a client.

For a rough approximation, take your total annual marketing and sales spend – including fully-loaded salaries – and divide by the number of clients acquired during that time period.

So if an IT consulting firms spent $80,000 on marketing and sales over the past 12 months, and brought on 20 new clients during that time frame, the cost of client acquisition is:

$80,000 / 20 = $4,000 per client

LTV helps your bottom line, while COCA hurts it, so it’s critical to gain a good handle on these numbers to grow your business with greater success.

Joshua Feinberg is Co-Founder and CMO of SP Home Run Inc., an IT channel Inbound marketing agency that helps find clients, retain clients, and grow by using proven Inbound marketing systems. To learn more about how your IT consulting business can attract the right visitors to its website, convert visitors to leads, close sales with new clients, and delight clients for long-term retention, download your free copy of the IT Channel Inbound Marketing Planning Guide.