Customer Life Time Value

Woman Doing CalculationsI just fired up an old laptop to retrieve a document.  This was a list of topics I planned to write about, and I thought it would be instructive to review the list.  I had searched through all my current folders several times when it occurred to me that it was created a while ago and it might me on the old Sony.  It took a little work to get the computer working.  When I located the file I checked the date:  May 18, 2005.  The very first item on the list was “Lifetime value of a customer.”

I was first exposed to the concept when I read Customers for Life by Carl Sewel.  I wrote a post about Sewel a couple of years ago.  His book was published in 1990 and at the time Sewel calculated the life time value of his customers at $330,000.  In 23 years I’m sure that value has gone up, and the number is going to be different for every business.

I have a renewed interest in the concept as I have been studying marketing metrics.  This spring I audited a University of Calgary, course called “Metrics and Measurement” taught by Jeff Nelson and Joanne O’Connell.  The text book for the course is “Data-Driven Marketing: The 15 Metrics Everyone in Marketing Should Know” by Mark Jeffery  The course is excellent and one I recommend.

Sewel`s number was a life time sales number.  The academic approach and a perspective that a business owner should be taking today, treats Customer Life Time Value (CLTV or CLV) as a forward looking metric that predicts future profits represented by a customer.  In effect it is a present value of a customer relationship.  If the relationship were viewed as an asset what would its value be?  This number allows a company to set an upper limit on what it is prepared to spend to acquire a new customer (customer acquisition) and the lengths they would go to, to keep a current customer (customer retention).   In future posts I will expand on these two very different metrics.

I won’t go into CLTV formulas and such here but  a good overview of the concept can be found in Wikipedia here.

Loyalty Programs

loyalty cardsI’ve been away from the keyboard for a while; it’s time to get back to this. I’ve had a lot of balls in the air, but I do enjoy writing.  I may be a bit rusty but hope you enjoy the ride.

Loyalty programs can be as simple as a “coffee card” that gets punched every time the customer places an order and allows her to earn a free coffee after a given number of purchases.  The programs can also be sophisticated programs that allow customers to accumulate points at multiple businesses and/or allow the retail partners to gain information on customers’ shopping habits.

With a loyalty program, I am sharing two things to keep in mind.  First, if you have a program commit to it.  Encourage your customers to participate and promote the program at every opportunity.  My personal experience here needs a little background.  Over the past few years I have been purchasing a lot of building material. We are seasonal campers in a family run campground an easy drive from our home.  We’ve been building decks and fences at our campsite. The initial purchase was for a substantial amount of the material. We’ve since been back for odds and ends. After several trips to the same store, on a rather small purchase the clerk asked if I had Aeroplan. Well, I do, and now I am annoyed that I wasn’t asked when I was making the large purchase at the beginning.

If your company participates in a loyal program, instruct staff to ask every time. The reason you participate in these plans is to encourage loyalty. Every time you ask, you are reminding your customer of another reason to keep coming back.

The second point about loyalty programs; view the program from your customer’s point of view, not your own.  A coffee shop owner made a mistake, in my opinion, when he cancelled his coffee card program.  His reason?  He felt he was giving away product he was going to sell anyway.  His concern, he was loosing a sale (which might amount to a couple of dollars) every time he gave the loyal customer the “free” coffee they had earned by being loyal.  After all, these were his regulars, they would have purchased the coffee anyway, right?  Wrong-headed!  I’ve mentioned him earlier, car dealer Carl Sewell says, anything you would do for your best friend your do for your customer because in retail your customer is your best friend.

I hope you find value here and become a loyal visitor, until next time — be outstanding.

Lessons From the Car Lot

Carl Sewell, author of "Customers for Life"

One of my top ten favorite business books is “Customers for Life” by Dallas car dealer Carl Sewell.  He’s one of the business owners I respect because he understand Retail DNA.  I will refer to this book from time to time to discuss lessons for all of us in retail.  For today’s post I will just share two ideas from Sewell.

The first comes directly from the title of the book.  The subtitle is “How to Turn That One-Time Buyer Into a Lifetime Customer.”  Sewell calculates what a typical customer spends with his dealership over their lifetime.  Without digging up my copy of his book, the number is approximately $330,000.  The specific number is perhaps not important as the book was originally published in 1990 and the numbers are going to be different for your business.  The point here is, when Sewell is dealing with a customer complaint, he judges what they are prepared to do. not by how much they just spent but how much they will spend over their entire lifetime as his customer.

The second concept is very simple but has a profound impact on what the dealership will do for a customer.  Sewell says, whatever you would do for your best friend, you should do for your customer because in retail your customer is you best friend.  For example, he says if your best friend would phone you in the middle of the night because they broke their key off in the door lock, then his customers can call him.  Well, not him directly, his dealership has its own service truck on the road 24 hours a day.

 

Do you love your customers enough to go to these lengths?  What one thing can you implement in the next 30 days to start turning one-time buyers into lifetime customers?