This is a useful question to ask because it helps focus
attention on a crucial areas for any business - customer
retention.
Let's say you sell a physical product, in fact, let's say you're
a motor
trader - so your products are cars or vans. If a customer
buys a van from you, just once, then
the value of that customer is the net profit you make from selling
the van.
That's one value.
Another is calculated by selling more than one van: let's say,
over a ten year period you sell four vans to the same customer. The
value has increased fourfold - depending on the type of van bought,
obviously.
We can then extend this calculation by looking at the value of
the same customer if they not only buy a van from you, but also
come to you for servicing, perhaps, MOTs and so on. Again,
this could be over a lengthy period.
Adding all this up probably gives a pretty impressive total. And
helps a business to quantify an individual customer's worth beyond
just an immediate sale.
This value has two very big implications for any business - and
it doesn't matter whether you're selling hotel rooms, drinks in
a pub or
meals in a restaurant. Looking at the
real value of a customer helps a business understand just how
worthwhile it is to retain that customer.
It also helps with calculations on how much a business should
spend to acquire new customers.
As the old business adage goes, it costs far more to acquire a
new customer than to keep an old one. So, when working out
the lifetime value of a customer, it's also necessary to take into
account (deduct) the costs of acquiring that customer in the first
place. All those ads, website work, optimisation and so
on.
Many small businesses focus, quite understandably, on getting
new customers, and it can be easy to neglect the other, just as
important, side of the equation - getting them to come back again
and again. Yet this is where their really outstanding value
can often lie.
The key to retaining a customer - we'll assume they are at least
satisfied with the service or product they have been sold - is
communication. And that means making an effort without necessarily
any immediate prospect of making a sale.
Putting effort into follow-up calls, emails and news of relevant
offers, new services and so on, is one good way of keeping
communication channels open and making sure your business is kept
to the fore in that customer's mind whenever they have need of the
product or service you sell.
It's vital, though, to make sure the contact and the form of
contact is selected by the customer, or it can just become
irritating. When you communicate, you need to offer some
added value, inform of something that benefits, or could
potentially benefit, that customer. That benefit, though, could be
something as indirect as asking if the customer is satisfied, has
any problems with the product and so on; in other words, a good,
old-fashioned courtesy call.
Phone calls are excellent, but can be intrusive; emails are more
passive, but there is always some uncertainty about whether they
have reached their target, or been opened by them.
SMS texting is yet another way, but should be used only for
communicating something concrete and only used infrequently with a
customer opt-out stop code. Twitter can also be used and has the
advantage of allowing the customer to leave the feed whenever they
choose.
The key to success here, as with maintaining a website if that
is appropriate too your business model, is to provide real value,
or a sound reason for customers to visit, and not necessarily one
with an immediate benefit to your business. The watchword
then is to keep customers - not perhaps at ALL costs, but certainly
at an investment cost that's reasonable based on your lifetime
worth calculations.
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