On our show Bandcamp at West Bremer Radio, Shane and I spoke about customer lifetime value today and I kicked it off with a bugbear…
Quick story.
Dan (my life partner in crime) and I took the kids for some Sunday pub grub. I love dining outside, after all, we live in sunny Queensland. On this occasion however, the grumpy manager sat us inside. After pressing him further I gave up and focused my protest on the young waitress who was delightfully obliging.
The manager was later overheard giving the waitress grief about moving us. I thought you short-sighted bugger, you’re spoiling our experience with your crappy mood (and for no good reason).
He viewed us as first time customers worth only that one transaction. Had he been willing to accommodate us with a smile I think our experience would have been faultless and the catalyst for our return business.
Now let’s break this down.
Firstly what is Customer Lifetime value? Put simply it’s the total worth to a business of a customer over the whole period of their relationship. For example, if you’ve bought a $50 diary from the same supplier for 10 years your CLV is worth $500 to them.
As business owners, we need to look beyond the first transaction and get strategic about how to retain the customers we already have. Often we get ahead of ourselves and believe we need more customers to be successful. In truth, it costs less to keep existing ones than it does to acquire new ones. So drilling down and giving your customers a better experience is a great way to drive growth.
In the case of the publican, let’s look at what he could have funnelled us into as valued lifetime customers (had he been playing the long game):
1. Sunday session drinks
2. Group bookings for celebratory events
3. Function room hire
4. Catering
5. Date nights
See the potential for greater profits once you have a customer on board?
Customer Lifetime value can be measured the following way:
1. Identify your customer touchpoints and where they add value
2. Integrate records across the customer journey
4. Measure revenue at each touchpoint
5. Add together the revenue over the lifetime of that customer
At its simplest, the formula for measuring CLV is:
Customer revenue minus the costs of acquiring and serving the customer = CLV
As a business owner,
• How can you create a better experience for the customers you currently have?
• What new services would make their life better?
• Is there a product to help solve a problem they face?
• If you have trouble knowing what you could offer them simply ask them what do they need help with?
• What is their desire?
Look at competitors and see what they are offering or better still not offering and fill that gap.
Even if you don’t use the formula to work out a CLV estimate it is worth your while to deliver an unforgettable experience every time.
P.S. Keen to learn 5 simple hacks to find your ideal customers (wherever they are) Head over here
