Do you think about the Lifetime Value (LTV) of your customers? When you do, you go beyond trying to make a sale, and concentrate on making a connection that will result in a hundreds or a thousand times as many sales. It’s why companies like Apple, Amazon, Crocs, and Zappos do so well every year, while others “go for the big sale” but end up going out of business. Which plan are you using?
What is Lifetime Value of a Customer?
Very simply is the sum total of what your customer spends today and forever. If you buy a “Tall Latte” at Starbucks today and never come back, your value to the coffeemaker is $2.95. But if you can’t do without your caffeine buzz every morning, and buy one every day, your value in an average year is $1,076.75. Over the next decade you’re worth $10,767.50. If you’re the average Millennial, you’re worth over $50,000.
Get it? It’s not about selling a cup of coffee. It’s about creating a customer for life. Starbucks “gets” the value of a customer.
Until recently, only the sales force focused on closing today’s sale, and only the marketing department paid attention to LTV.
What you need to know about value
You don’t need to get bogged down in complex calculations: different customers spend different amounts every year, but you can probably spot both
- the average sale to a typical customer, and
- the average sale to your best customers (say, those that fall into the top 20%)
What’s the value knowing a customer’s value?
You invest in finding new customers: you spend on advertising, sales, PR, websites, email campaigns, product features, and more. Understanding your average customer’s value will help you understand if you’re spending too much or too little.
High Value means it’s time to invest more
When the value of gaining and keeping a customer is high, it pays to invest more in customer acquisition and retention. Above all, don’t lose them. That means more than advertising and sales, it’s little things like saying “thank you,” providing great service from the start, and using every opportunity to engage and communicate with customers. How? Do you send an email newsletter? Or “snail mail” flyers? Do you have a “fan” page on social media? Do you put wasted “hold” time to use with interesting “messages on hold”?
Customer retention increases the value of your company.
It’s supposed to cost 8 times as much to acquire a customer as to keep a customer. Over a lifetime a customer’s value skyrockets. Ask Starbucks. Or your accountant. The difference between businesses that thrive and those that die is customer retention. That’s the first step to maximizing their value.
So, are you doing everything you can to keep every customer “for life”?