What is the value of a customer ?
Dinner on Saturday evening cost €50 each in our local restaurant, The Bridge Bar in Ramelton, which included wine and tip. The food was great and the service was even better. We were happy with the meal, the wine, the pricing, the staff and the ambiance, so we booked again for next weekend. What are we worth to that restaurant as a customer ?
One visit a week, a €100 spend, or €5200 a year, plus the chance that we might bring friends and family or recommend the restaurant which we do. All of a sudden this customer could be worth closer to €25,000 a year and over just 10 years equates to €250,000.00 turnover – How many such customers are needed to generate the sales required ? RFM Recency Frequency & Monetary Value – consider them all when targeting Customers.
So a simple metric would be something like Spend say €100 by estimated number of visits say even just once a Month by estimated number of years likely to visit say 20, so we get €100 X 12 X 20 is €24,000. If they visit twice a month, it is still €12,000. Plus the value of their guests or the people they refer. Now how many such customers do we need to run a profitable business? How do we get this number of clients? Do we categorise Clients in to different sizes or spends?
Some Marketing musts include that Personal Contact, perhaps a monthly Direct email with a newsletter and maybe special offers for the regulars, maintain good website content, well designed menus and promotional literature, consistent PR in traditional and/or Social Media. Tradeshows or appearing at local fairs or fundraisers in the local community. You want people to be a part of your community, so be a part of theirs. Sponsor local events and community fundraisers or local sports teams.
Educate your own customers to allow them spread the word about your business. Invest in customer loyalty and reap the rewards of the satisfied, the Raving Fan !
Do a Lunch & Learn exercise – special menu or price for customers to attend for a tasting and get exposed to some educating or training, maybe a tasting session with feedback. Let these customers tell you what they want from you, what they like, plus what they are happy to pay for it. Or do it as a Dinner and Donate where the proceeds or part of them from the evening go to a set local charity.
Not every business is a restaurant, but using the analogy, what are you feeding your customers and how can you give them what they want. Give people what they want and they will do the same for you.
How to get more business from existing Clients?
Ask them and find out – do the surveys, get the feedback, encourage Trip Advisor or other independent metrics. It is a two way street, if you want someone to care about you, you want to show some interest in them. People do business with people they know, like and trust.
Some Tips for Customer Loyalty
- Stay in touch – Newsletter, eZine, Post
- Connect & communicate in Social Media – talk
- Ask questions by email or post, ask for feedback
- Telephone from time to time – talk
- Ask for a favour such as an introduction
- Support their causes – show genuine interest
- Offer a FREE assessment or advice
- Send good Referrals – spot opportunities for your Clients
- Email useful information or tips, even festive recipes or links to useful apps
- Show returns or benefits of a previous spend
- Survey – ask questions and offer the opportunity for anonymous replies
- Comment card – make it simple to get feedback
What is the cost of getting a new customer?
If we have worked out what our typical customers or personas are like – how much should we spend to get them ?
Some companies will spend all or most of the profit from a sale in order to get that sale or customer. Some will do it for just the first sale, on the basis that the repeat sales will generate a profit each time. Some companies will go further and lose money on a sale or a number of sales just to get that new customer, so it is an investment to get the new business or customer. This is a strain on Cash Flow unless you have this as a Marketing spend in your budget, just like Google Adwords or Facebook Adverts.
Who do we want as a customer ?
When you plan your Marketing Campaign, do you go for numbers or for quality ? If you know the type of Client you want, then focus your advertising on that demographic, Male or Female, Age, Interests, Preferences. Stop getting numbers through the door that only have to be replaced time and time again. Go get the right fit for you, people who repeatedly want what you have to offer at the price you offer it. Getting the wrong people through the door will keep you busy firefighting complaints, difficult demands and defending your offering. This preferred client may cost more to get, be a bigger investment for you, more money, more time, more deals, more patience, but if it is the right person, do the courting, engage in the foreplay and show enough respect to get their attention. Then work on keeping them.
Digital Marketing can offer a low cost way to stay in touch with potential clients, so that when they are ready to buy your product, you are in their mind as a potential supplier. Rather than competing in Google Adwords at €20 for every random click, spend less to connect by email or post all year round.
The Challenge for most small companies is to try to stop taking on the wrong clients whilst you invest in getting the right clients. Turning away ready money is never easy, but this applies to all of us and the few who do will have less stress, more control and profit, as well as more satisfaction in your work. The Clients need suppliers who are successful, who will not go bust after 3 years and who will be there for the long term to support their business. As much as these potential good clients want the lowest price, what they want is the best quality, best value, best support they can afford. Ultimately, that investment in you should deliver the best ROI return on investment for them.
If you just deliver what you promise, you will be unusually efficient and equally unusually successful. Just make sure it us profitable for you. Appreciating the lifetime value of a customer will help you plan for the future with more accuracy. Getting and keeping raving fans is not always easy, but it creates a relationship rather than a transaction, and the repeat orders or referrals will help sustain growth in your business. Chase the relationship and not the sale.
Value based selling – value of a customer based on results
Some people approach selling on the basis of value based selling. That is to say that they price the project or the client rather than the work to be done. So the outputs rather than the inputs. Many potential clients like the idea of paying just a percentage of the gain. If we told you that by investing in a new web presence with us, you could increase your sales by €200k and your gross profit by €100k – how much would you invest for that return? €20k, €50k €90k €99k ?
Determining a budget
To determine the likely return on any investment we would need to ask how many customers do you have, what is the average sale value, if you have multiple routes to market such as B2C and B2B which has the best profit after all costs. What is the size of the potential new business/market, put a value on that and the likely profit. Now what is the available budget?
It is possible that if a client has an existing customer list and a blog that we could sell more to that list using an existing blog, with a landing page that upsells something. This could increase sales and the lifetime value of a customer – what is that worth to you?
There are different ways to calculate or estimate and agree pricing and payments.
Input based – You can price based on the inputs such as time or hours at a particular rate and any costs such as plugins, software subscriptions, design costs etc. This is very common, especially in web design. It is easy to understand that you strike a rate per hour of work, estimate the number of hours that might be required, multiply one by the other and that is the price – simple!
Is it right, probably not, unless the rate per hour reflects your experience and qualifications and the quality of your work. Likewise you might estimate 30 hours and end up taking 40 – who pays for the extra 10.
Output based – Or you can price based on outputs such as a website or a printed brochure or a knitted jumber, a fitted kitchen etc. This fixed or agreed price is another guesstimate of costs and the profit required. Many people sell an output at a fixed price or have a few products that each have a set price. But it is rare that any two clients requirements are the same. So one product is unlikely to fit all projects, especially in the services businesses.
Value – Or you can price based on the value the product you will deliver for your client. If, we deliver a website that generates 100k in increased annual revenue and 50k in gross profit, then is that worth 10% or 20% of the increased profit?
Many buyers will look for the best price or the lowest price, it is normal behaviour. If you are pressured in to haggling on your price, avoid discounting your work. Try instead to accommodate the buyer in other ways.
Perhaps you can get paid in instalments over 12 months. Or take stage payments, as your produce elements of the project. You could get paid 100% up front and offer a reduction for quick payment. You could offer a Bonus for getting a full price agreement, such as an extra page in a website or brochure, extra bed night in a hotel booking etc.
You could offer the project in such a way that a client can remove parts of it to reduce the initial investment.
Or get paid more than your asking price, but over a longer period.
Maybe you can get 75% of the payment with 25% payable once the client gets some return on the project. This is seriously partnering with your client and can be a fair option, which we do offer, but generally in business this is uncommon practice.
It is important in any price negotiation that both sides look at options rather than get fixated on a specific figure. Usually, with some goodwill you can find a solution that works for everybody.
For both parties, it is less important what the price is and rather more important to get a good return on any investment.
Generally, a great return on investment will create a happy client, a successful case study with a positive review, which will generate more similar business or referrals.