Making Sense of Customer Value
Making Sense of Customer Value
What is the true value of a customer? How would you ascertain this? If you know the true value of your customer, you get a better sense of how much money you can afford to invest in customer acquisition activities.
The true value of the customer is the total lifetime purchase of that customer and more! The "total lifetime" value of a customer is the average purchase value of that customer, multiplied by the average number of times that customer buys in a year multiplied by the average number of years they remain a customer PLUS the value of referral business that customer generates for your business.
Let's revisit my weekend Café where my cycling buddies and I stop for a coffee every Saturday and Sunday (actually a different one each day due to the location we ride to!). The Café owner may consider the $3 I spend on a cup of coffee as "small-fry". But that is actually far from the truth!
Let's say for arguments sake that his profit margin on that cup of coffee is $2. Now, I try to cycle each week, even in bad weather (yes I know I'm an obsessed cyclist!). So, that makes roughly 50 cups of coffee per year or $100 in profit. If I keep this up and visit the same Café (if they keep me happy, I will!) for say 5 years, then my business is now worth $500 in profit to the Café owner. Still "small-fry" in the overall scheme of things, maybe?
Now, I don't cycle alone! In fact, our group varies from 6 (on the rainy days) to 25 - let's take an average of 15 over the year. Now "my" business is worth $500 x 15, or $7500 in profit to the Café owner - not to be laughed at now. And that doesn't take into account our "Cyclist's Christmas in July" dinner that we had there with partners (some 40 people all up with an average spend of about $100 - say $50 per head profit to be conservative). So, now "my" business is worth $7500 plus $2000 x 5 years, or $17,500 in profit to the Café owner! Hey, I'm starting to feel mighty important!
But wait.........
There's more! Because I really like this Café, and they always treat me well, I love to tell other people about it and suggest they try it out. If only two other people, directly as a result of my telling them about this wonderful Café, visit, then that is additional business that I have brought to the Café and increases my value as a customer.
Now, the BIG question - would it hurt the business owner to occasionally provide a cup of coffee for "free" (even to the whole group), or a few bottles of wine complements of the house at our dinner? On a cost basis, that might be an investment of $15 occasionally (coffee) or $30 (wine). Isn't that investment well spent, to secure a customer worth at least $17,500?
So, what is the true value of your customers?
Making Sense of Customer Value - To learn more about this author, visit Dr Jürgen Strauss's Website.
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Your business could be worth much more than you think!
What is the true value of a customer? How would you ascertain this? If you know the true value of your customer, you get a better sense of how much money you can afford to invest in customer acquisition activities.
The true value of the customer is the total lifetime purchase of that customer and more! The "total lifetime" value of a customer is the average purchase value of that customer, multiplied by the average number of times that customer buys in a year multiplied by the average number of years they remain a customer PLUS the value of referral business that customer generates for your business.
Let's revisit my weekend Café where my cycling buddies and I stop for a coffee every Saturday and Sunday (actually a different one each day due to the location we ride to!). The Café owner may consider the $3 I spend on a cup of coffee as "small-fry". But that is actually far from the truth!
Let's say for arguments sake that his profit margin on that cup of coffee is $2. Now, I try to cycle each week, even in bad weather (yes I know I'm an obsessed cyclist!). So, that makes roughly 50 cups of coffee per year or $100 in profit. If I keep this up and visit the same Café (if they keep me happy, I will!) for say 5 years, then my business is now worth $500 in profit to the Café owner. Still "small-fry" in the overall scheme of things, maybe?
Now, I don't cycle alone! In fact, our group varies from 6 (on the rainy days) to 25 - let's take an average of 15 over the year. Now "my" business is worth $500 x 15, or $7500 in profit to the Café owner - not to be laughed at now. And that doesn't take into account our "Cyclist's Christmas in July" dinner that we had there with partners (some 40 people all up with an average spend of about $100 - say $50 per head profit to be conservative). So, now "my" business is worth $7500 plus $2000 x 5 years, or $17,500 in profit to the Café owner! Hey, I'm starting to feel mighty important!
But wait.........
There's more! Because I really like this Café, and they always treat me well, I love to tell other people about it and suggest they try it out. If only two other people, directly as a result of my telling them about this wonderful Café, visit, then that is additional business that I have brought to the Café and increases my value as a customer.
Now, the BIG question - would it hurt the business owner to occasionally provide a cup of coffee for "free" (even to the whole group), or a few bottles of wine complements of the house at our dinner? On a cost basis, that might be an investment of $15 occasionally (coffee) or $30 (wine). Isn't that investment well spent, to secure a customer worth at least $17,500?
So, what is the true value of your customers?
Making Sense of Customer Value - To learn more about this author, visit Dr Jürgen Strauss's Website.
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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 Dr Jürgen Strauss (Visit Dr Jürgen's Website) Director of !nnovaBiz: We work with businesses to provide cost effective internet marketing strategies and personal/ team productivity solutions. We make extensive use of Mindmapping in all our work to allow creative visualization of ideas, solutions, strategies and projects. We use innovative, scientifically developed systems customized to each client's particular situation. I am passionate about helping people in business achieve amazing results and create greater success through innovation in marketing, customer experience creation and using systems to improve productivity. During my 25 year career in the corporate world, I gained extensive experience in people management, marketing, product and brand management, technical and business project management, development of new products, customer relationship management, strategic planning, team building, creative thinking, sales service, technical service and research (chemical and photographic) and the development of business systems and processes. further details see www.in novabiz.com.au
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