If you buy 3 pairs of Nike shoes for $89.99 each, then your worth $269.97 to Nike or the place that you bought the shoes. Not every one of their customers are worth $269.97 but you are.
Now if you make a product or service that people only need to buy once in their whole life, that’s very different from making a product or service that someone is going to use everyday, forever.
So, how much is Starbucks willing to spend to get someone addicted to coffee or espresso? Well, the answer is probably $100. They’re probably willing to spend $100 on real estate to get one person hooked because the lifetime value is $1,000.
Now when someone is competing with Starbucks they say it’s not fair, the rent’s too high. Starbucks say’s no the rent isn’t to high because I’m creating a thousand attics every time I build a store.
They have taken the correct view in a competitive market.
If you’re building a monthly magazine, how much are you willing to spend to get one new subscriber to your magazine?
Well, you do the math: You say if someones subscribes they usually subscribe for 2 years and doing the math of 50 ads per issue and 12 issues a year and etc., each subscriber to your magazine is worth $200 to you. So, if someone comes to you and say buy TV ads to get subscribers to your magazine and the ads are $150 you buy them because you make a profit.
It’s all built into the structure and asking yourself, how do you maximize the lifetime value of a sale?