The lifetime worth of a customer

The lifetime worth of a customer
Panagiotis Koutoudis
by Panagiotis Koutoudis

Have you ever worked out how much a customer is worth to your business? It is definitely an exercise that is worth doing and one which will assist you when developing a promotion strategy, communicating with your customers and building up long term relationships. After all one happy customer is great for getting the next customer! Take an hour and sit down and work out what your average customer is worth to you but before you do it is worth considering the following.

The difference between a good and bad experience

It’s not all about the sale. Well it is when you want to see the money coming in but think of it longer term. Take a hairdresser for example. A client visits for the first time having been looking for someone to trust with their long locks. They put their faith in that hairdresser who does an ok job but they pay, leave, grumble to their friends and never go back. £50 may have gone into the till but it stops there. Now imagine the hairdresser did the most amazing job and the customer absolutely loves it. They pay the bill plus a tip then they go out feeling a million dollars, get lots of compliments and recommend you to all of their friends and post their selfie all over Facebook not before they have booked their next appointment. Now they return to the same hairdresser every 6 weeks. The worth of that customer is £50 x 7 - £350 over a 12 month period. Then their friend books and they spend the same suddenly that one customer is worth £700. The cycle then continues and you not only get happy and regular customers but the best kind of promotion – word of mouth reviews.

The product life cycle stage

Sometimes it will not be as simple as the hair client that comes back every 6 weeks. Take a house sale for example. How many times will a person move over a 20 year period? 2-3 times maybe – so the lifetime worth of that customer is spread out over a much longer period. Buying a car is another good example of a longer term commitment that happens less frequently. What you need to ensure is that when they are ready to buy their first experience was memorable enough that they return to you.

Offering loyalty schemes

If your product or service is something that can be bought more often then perhaps you could think about offering loyalty reward schemes like the big brand supermarkets do. Consider your pricing structure and what you could give back without being out of pocket but also consider the lifetime worth of that customer. If you were a beauty salon and gave away the 8th eyebrow shaping free wouldn’t that be worth it to keep the customer coming back to you to earn their free session rather than choosing someone else? What would that do to the good will with that customer?

Build a database

This is invaluable – if you have a way of reaching out to your customers then you can keep yourself front of mind and notify them when you have promotions and special offers or new products and services. You can build a VIP customer list and send special offers to your regulars. How great would it be to have the email address of every customer and be able to send newsletters or updates. You would be surprised at how many people will actually respond to this kind of marketing if they are part of a VIP group.