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.

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?

Lessons From Sam Walton

Sam Walton, founder of Wal-Mart

This is the first in a series of posts on what I like to refer to as Retail DNA.  This is a new category and something I will write on from time to time.  Some owners of retail businesses seem to have a sixth sense when it comes to running their business. They approach things differently.  They don’t need to be told, they figure these things out on their own.  It’s like it’s part of their DNA.  The good news is, the rest of us can learn from them.  We are going to look at a few of my favorites, I hope you enjoy the ride and let me know what you think.

Now this different approach applies to the way they treat both their staff and their customers. If you read Sam Walton’s autobiography “Sam Walton: Made in America” you will learn from one of history’s greatest retailers. I read the book many years ago and there are lessons that are part of the fundamentals I use when working with a retail client.

First, let me say that this post is not intended to be part of any discussion about how Wal-Mart is perceived today in terms of their treatment of employees.  I am aware there are opinions on both sides but this is not something I have studied and therefore am not qualified to weigh in.  This post is meant to share some thoughts and ideas that you can apply to your own retail business.

Now back to my example. Many business owners keep information from their front line staff. The fear is that the information might be misused or competitors might learn this inside information. Sam Walton respected his front line staff. They weren’t clerks they were associates and he shared information. My daughter early in her working life worked in a Walmart store. She wasn’t “part-time” she was a “prime-time” employee.  On her first day on the job was told exactly what that stores sales were the previous day. Sam felt there was value in sharing the information with everyone as it made them feel an important part of the success of the store. This benefit far outweighed any possible damage that might occur from people outside the company gaining access to the information.

Make your employees feel that they are important to your success.  Share information with them and give them an opportunity to show you what they are capable of.

Are you Saving any Money?

I’ve noticed that some retailers are seriously understaffed.  I have gone into stores with the intention of making a purchase and left without the item(s) I needed.  I was unable to find the item and was also unable to find any help on the floor.  A few years ago when the economy was very strong it was hard to find staff.  Today, since the economy slowed, staff are available.  Why can’t I find help?

Some of my retail clients tell me they have benefited from the downturn.  They are able to get and keep good staff.  If a store has no staff on the floor they are cutting expenses which is false economy.  Good staff on the floor help customers find the things they need.  Well trained staff can also interest customers in additional purchases.

Your people are a critical component of your success in retail.  They are the point of contact with your customers and therefore they are the face of your business.  Jan Carlzon calls there interactions between customers and staff “Moments of Truth” which is the title of his book.  Carlzon was the CEO of Scandinavian Airlines (SAS).  He empowered his front line staff to deal with a problem in the way that they would want the problem dealt with if they were the customer.  Under his leadership the airline experienced a dramatic turnaround.  When a store has no staff they sacrifice not only sales but the opportunity to make connections with customers.