What is the value of a customer ?
Dinner on Saturday evening cost €50 each in our local restaurant, 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. 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, 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 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
- 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, 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 a 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. 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 potential clients want the lowest price, they still want the best quality, best value, best support they can afford. Ultimately, that investment in you should deliver the best ROI return on investment.
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 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?