How much will you spend in your lifetime on something as simple as toothpaste? Thousands of dollars? How much will the average customer in your business spend with you over their lifetime?
Single Transaction vs. Lifetime Value
Are your customers a single transaction or a lifetime relationship? Here’s an example using a lawn-care company:
- The customer pays you $25 each time you mow their lawn.
- While the first transaction is only $25, they spend that each week from May – September so annually they spend about $500.
- They stay with you for seven years so they actually invest $3,500 in your company. So is this a $25 customer or a $3,500 customer?
Next, consider that your ‘logo’ vehicle is parked in their neighborhood generating potential leads for you each and every week. Or that loyal customers gladly refer others to you. Over the seven years, do you think you could get 3, 4 or 5 new customers from your relationship?
So now what is this customer worth?
Establish A Long-Term View of Customers
As a business owner, you must establish this long-term view of their value before you can appreciate how important it is to develop a relationship with customers and ensure everything is done to keep them as long as possible.
So how do you determine the lifetime value of your customers? Here’s what you need to know.
- What you average customer spends each time they buy from you?
- The number of times per year (on average) your customers buy.
- How long does your average customer stay with you?
Don’t strive for perfection here. If you don’t have this information at your fingertips (and most won’t), come up with your best estimate using the purchase history or other data you have. You can get a ballpark figure if you randomly select 50+ customers and review their purchase history or research industry data.
Your View of Customers Drives Decisions
How you view your customers — as a single transaction or lifetime relationship — will ultimately drive the decisions you make and the actions you take. With a lifetime value perspective, what would you and your team do differently? Would you invest more to acquire a new customer? Would you stay connected throughout the year? Would you make each customer contact or service call special? Would you take the time to check in with customers to determine their level of satisfaction or maybe get ideas for improvement?
For most business owners, the answer is yes to all these questions. So now it’s your turn. Start nurturing those relationships and create lifetime customers for your business.
New Monthly Article & Business Tools
For new business improvement articles, exclusive tools and insights on entrepreneurship, click here to subscribe to my monthly eNewsletter. When you do, I’ll also send you my free eBook, How to Build Profit Through Leverage.