What would you list as your most valuable item?
If you were asked to list all the assets of your business in their order of cash value – your buildings, your equipment, your inventory, your personnel, your account receivables, your unique products etc, which would you list as being the most valuable?
Most people over-look their most valuable asset of all – their customers.
The reality is that if you leave a business with its customers, most can survive and be resurrected, no matter what else is lost. Furthermore, it’s rarely realised how much investment goes into obtaining a customer and why effort should be invested to keep them.
Maximising your return on investment
When you view a business from what has been invested in obtaining a customer, you realise the importance of maximising return on this investment and the need to protect the investment.
When thinking about maximising return on investment you start to realise the importance of achieving repeat sales from your customers, and in the instance of many businesses there’s a realisation that their existing customers could be a far greater source of income than first realised.
Lifetime Value Potential
A key aspect to consider is ‘Customer Lifetime Value Potential’ and there’s a simple formula for calculating this that every business should do:
Sales Turnover
x
No. of years average customer does business with you. Divided by No. of customers
If the business turns over $1 million per annum and the average customer tends to stay 3 years and it has 100 customers, then the revenue potential from the average customer’s lifetime value is: $1,000,000 X 3 divided by 100 = $30,000.
Another way of working it out is if your average customer spends $2,500 each time doing business with you and this occurs an average of four times a year for 3 years, then the customer’s contribution to turnover is $2,500 X 4 X 3 = $30,000.
Your average customer’s lifetime value is worth calculating because on determining their worth you can decide if it’s worth making an effort to extend the period that customers stay with you.
Lifetime Value potential of a car buyer
The following illustration might make the point clearer. Consider the Lifetime Value Potential of a person who purchases a car.
Let’s say a person buys a new car in the year 2000 for $30,000 at the age of 35 years:
And let’s assume this person is likely to replace that car every 5 years at least until aged 65 years. You could say over the next 30 years if the spending level remained the same, that person would spend at least $180,000 on new cars.
We haven’t allowed for increases in car values and nor have we allowed for the fact that many people buy more luxurious models as they get older, nor that most families have at least two cars, many people buy a new car more often than once every five years and of course there’s the other profit sources such as service work, insurance and finance.
If you include all that, it would be easy to expect this person’s Lifetime Value Potential as a car buyer to be somewhere between $250,000 and $500,000.
But here’s where it gets even more interesting.
- People who purchase successively from a supplier – no matter whether it’s from a car dealership, computer store, whatever – if they’ve got to know, like and trust the supplier, they’ll deal more openly with significantly less price haggling. In other words the most profitable customers are repeat purchasers.
- Furthermore the cost of sale of repeat purchasers is significantly less. According to researchers, Bain & Company getting business from current customers costs between a fifth and a ninth of what it costs to acquire a new customer. Also the longer they stay as a customer, the larger the average order and the wider the range of products or services they’re likely to buy.
So with all that in mind it’s well worth investing something to retain customers!
More than ever, good marketing, is becoming ‘Relationship Marketing’
- ‘Relationship marketing’ is what will prevent your clients from being tempted to get advice from someone else about their problem.
- It’s what maintains your presence with your clients so that they’ll immediately think of you.
- ‘Relationship marketing’ is what will lead your clients to refer you to other people.
- And it’s what will give you their repeat business.
Marketing legend, Jay Abraham, says that in today’s marketing there’s a far greater need to show you’re keen to help and advise people.
And on this score he says:
- The key is to show an attitude of caring which engenders people to become loyal to you.
- This is because despite people having greater choice in today’s markets they’re actually feeling less secure, less trusting, less independent, more bombarded, more wary of being ripped-off and more hesitant about making decisions for themselves and this means…
- They want to be looked after – almost nurtured without being 'sold to'.
Not only that but…
“The more you get into the heads of your target audience and give them what they need, the easier it becomes to get their business”.
And the way to do this is with a ‘customer relationship newsletter'.
• The key is to be pro-active in maintaining an ongoing relationship.
- In her excellent book 'How to Get Business in 90 days and Keep it Forever', Australian author, Wendy Evans, a former researcher and marketer with Saatchi & Saatchi says that if you fail to maintain contact, people simply forget you. Furthermore, the longer the time between contacts so the chance of repeat business fades away. Her research showed that 90 days should be the absolute maximum period between contact.
• In studying the automotive industry, Saatchi & Saatchi found that some 71% of people when receiving a car manufacturer’s survey indicate they’ll buy their next car from the same dealership because they were happy with the customer service. Tragically, the reality is that by the time they come around to buying their next car only 11% actually buy from the same dealership.
- Saatchi & Saatchi found that many dealerships make the mistake of believing that sending a reminder to their customers that the vehicle’s servicing is about due is 'customer relationship building.' The fact is people regard that as a drive for extra income – and nothing else.
- Interestingly, they found that by just sending a newsletter (further details in automotive page) a considerably better level of customer retention could be achieved.
- A study by Standard & Poors in 2002 found that of 4,000 people receiving newsletters: 92% read at least some issues; 83% read most or some articles with 84% finding the information useful. A whopping 72% saved articles for future use; 74% visited the provider’s website; 60% passed on an article to a friend and 40% called for more info.
- The late Gary Halbert, one of the world’s most famous direct marketers was renowned for urging business operators marketing online to capture as many physical addresses of their online prospects as possible. He said that if you can collect the physical addresses of your online prospects (ezine subscribers, for example), you can then send them a direct mail promotion and generate up to 400% higher sales than with the same copy delivered only on the Web.
Contact us
For any enquiries you can speak to us from anywhere within Australia for the price of a local call on 1300 557 660 or via email: info@mediasupportservices.com.au
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