The REAL value of a customer

What is a customer REALLY worth?

Have you ever thought about the MONETARY value of your customer?

Calculating that number can quickly become a tricky exercise involving the discount rates and sometimes silly debates about technicalities.

The purpose of this post is to raise a simple idea, not to debate the relative merits and demerits of the various approaches.

  • If you are interested in a more detailed description, read about it here
  • If you are interested in a seeing the Harvard’s CLTV calculator, you can see that here.  

 

 

For the purposes of this post, I want use the simple version, where:

CLTV = Average Sale x No. of Transactions per Annum x No. of Years they remain a Customer

For example, for a hairdresser, it may look something like this:

$120 x 8 x 10 years = $9,600

The average Starbucks customer is said to be worth approximately $14,000.

If the typical customer is easily worth $10k – and one customer can, over its lifetime influence a few friends and family members too – that number can quickly turn into a $100,000!

When you think about it that way, it is a staggering amount.

The obvious point that you will immediately consider is the impact on a business when you fail to resolve a complaint or simply just deliver poor service?

The point I want to raise is that it would make sense if you had a specific strategy to increase each of the three factors that determine the total value.

That is:

  • Increasing the average sale
  • Increasing the frequency of visit
  • Increasing their loyalty

In addition, of course there is the impact of referrals – and whether you have a strategy for that.

Sometimes marketers focus on customer acquisition because it is the glamorous aspect of marketing – who doesn’t want to shoot a TVC?

But more powerful and more effective than most TVC campaigns can be a simple matter of setting a sales target for your employees.

The wrong way of setting a sales target for your store would be to encourage the team to strive for your daily target of $5000.

Instead, ask them to strive for an average sale of $10 instead of your current $7.50

Why do like the Acverage Sale so much? It is a customer-centric measurement.

This example seems simple – but if they achieve that, you will have increased your sales by 33%!

Create specific strategies for the things that are important and have a big impact – and make sure you measure the outcome because not everything will work. (“What gets measured gets done.”)

NOTE: We are still trying to build the smart community (announced here) called Retail MasterMind. If you have put your name down, I will get back to you when we approach the deadline (1 April). If you haven’t checked it out yet, HERE is your invitation…