A customer is for life – not just now
Have you ever stopped for a moment to consider how much your customers are worth to you? The tendency is to look at the ‘here-and-now’ value of a client, and that means what they spend today. But what of the future? What about the life-time value of that customer?
It reminded me of a time when I sold memberships at high-end golf & leisure clubs. An annual membership fee is a high margin product, and we worked hard to attract new clients AND keep the existing ones happy. Of course it’s a hell of a lot more expensive to recruit a new one than retain an existing one (some say six times as much), and it’s really tempting to spend most of your time seeking new business – the exciting resource that’s out there but not yet ‘mined’.
But it’s useful when balancing time and resources to consider the lifetime value of these existing clients. Let’s say a member spends £700 a year on subs. That’s easy to measure, but what about bar & restaurant expenditure, competition entry fees, beauty treatments and classes? Perhaps another £500. What about the positive word of mouth that member spreads throughout the community, and the referrals and new recruits that result? Maybe two new referred members @ £1200 pa spend. And what if that original member stays for 10 years? Not to mention the referred ones too!
That’s an awful lot of value (£12,000 + referred business).
When budgets are tight and you’re allocating resources to client acquisition, remember the potential cost of cheesing off the clients you’ve got now. That’s why John Timpson of the shoe repair chain empowers his shop managers to spend up to £500 to resolve a customer complaint. Better, in his view, to nip it in the bud rather than let it fester. Of course it usually costs a fraction of that figure to send the customer away happy – and the positive word-of-mouth pays further dividends.
It’s worth wowing your clients. It’s not just what they spend today. It’s their future custom and the good things they say about you that create long term value – and profits.