subject: Why You Should Focus on the Lifetime Value of a Customer [print this page] Why You Should Focus on the Lifetime Value of a Customer
You've probably heard that it costs more money to get a new customer than to retain a current one. Savvy marketers know that the best way to insure future earnings is woo the customer into a long-term relationship. You can do this by making repetitive sales to the same customer or through referrals by satisfied ones.
The Lifetime Value of a Customer (LVC) is the dollar amount that is calculated to assess how much a long-term relationship is worth with a given customer as opposed to a one-time sale. Knowing the LVC is very important because you can use this knowledge to account for differences in certain demographics as well as understand the psychological triggers that persuade particular groups of people to buy your products. The benefit of being armed with this information is that you can influence the buying behavior of your target market over the course of several years.
For instance, one aspect of calculating the LVC is being aware that repeat behavior yields higher profits. There's a formula for calculating this figure:
Estimated Average Lifetime Value = (Average Sale) x (Estimated Number of times customers reorder)
Now, keep in mind that some businesses may not focus on the LVC because they may offer one-time services. For instance, home builders may only be hired for a job only one time. However, plumbers are likely to be rehired several times by satisfied customers. Both scenarios can produce long-term profits.
Businesses who do not capitalize on one-time sales transactions are leaving a lot of money on the table. Why? If a customer is satisfied, word-of-mouth referrals can produce unlimited income potential. That's why you should treat every customer as if he's a lifetime customer.
How do you go about doing this? First, always over-deliver. Give more than the customer expects. Make them smile. Your goal should be to thrill your customers, not just fill an order. Have you ever gone to the store and the cashier barely acknowledged you? Does that kind of greeting make you want to come back for more?
Second, be generous with freebies. Product samples, discounts, and referral programs can exponentially increase future sales. People place more trust in marketers who are generous with their products and their time. Free consultations are also a very effective way to influence buying behavior.
Third, give customers an incentive to become repeat buyers. You've probably seen restaurants capitalize on this idea: Buy 10 ice cream cones and get the next one free! It works. "Free" is a very powerful word. Even if a customer has to pull cash out of his wallet 10 times to get to the freebie, he's influenced by the giveaway.
It's too bad that many marketers have tunnel vision when it comes to selling. They focus on the sale and neglect the power of relationship building with their target market. If you want to dominate your nicheliterally OWN itthink beyond the single transaction and consider how you can double, triple, even quadruple your profits by focusing on the earning potential that comes with long-term, loyal customers.
