"Customer Lifetime Value" is the total amount of money that a customer will spend with you or your organisation over the time frame they continue to spend money on your products or services.
Here are two examples of Customer Lifetime Value:
1: I have worked with a number of real estate sales professionals. They tell me the average person buys a new home about every 6 years. So over a 20 year period they could buy around three or more homes. If the average real estate commission is say $10,000 it means the lifetime value of a customer for a real estate person could easily be $30,000 or more over 20 years.
2: I spoke with an accountant recently who told me their average client spends $2,000 a year on accounting fees and stays with them at least ten years. So the customer lifetime value of each of their accounting clients is around $20,000.
What is the lifetime value of your own customers?
Tessa explained that you also must have a mindset of wanting to create customers for life. This means that when you go through the sales process just ask yourself: "will this action that I'm about to take create a customer for life?"
If it won't create a customer for life, don't do it.
A common mistake is forgetting about the long term value of a customer and just going for a quick sale initially.
This short term thinking can be very costly.
I read a very interesting message about this mistake from best selling author and speaker Robin Sharma.
As Robin explained: "I recently used a graphics design firm to create a new brochure for a leadership seminar I was to deliver to a group of investment advisors. While the quality of the brochure was excellent, the agency charged me triple the going rate for the work they did. I quietly paid the invoice but vowed never to do business with that company again.
Had these people not been so consumed with making a profit from me on the first transaction and, instead, sincerely committed themselves to building a long-term relationship by treating me well and delivering far more value than I had any right to expect, they just might have had a customer for life.
Had these people taken the time to reflect on the fundamentals, they would have realised that someone such as me, who spends his life as an author and speaker, would generate significant amounts of profit over the long term not to mention the goodwill I would generate for them by telling every one of my colleagues of their high quality services."
This short term thinking to get a onetime sale effectively cost the graphics design firm a small fortune in ongoing repeat and referral business from Robin.
Action Exercise:
A useful starting point is to ask you and the people in your organisation the question "What can we do in our business that would create customers for life?" And then put into action some of the ideas you come up with.
"One customer, well taken care of, could be more valuable than $10,000 worth of advertising."
Jim Rohn
Graham McGregor is a marketing consultant and the creator of the 396 page 'Unfair Business Advantage Report.' www.theunfairbusinessadvantage.com (This is free and has now been read by business owners from 11 countries.) You can email Graham on graham@twomac.co.nz
