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Working The Back End: How To Increase Each Customer’s Lifetime Value
By Joe Cavell | July 18, 2008
Since getting new customers seems to be the primary focus of most business owners, it may be worth spending some time to consider the Lifetime Value (LTV) of a customer. Depending on which numbers you look at, the cost of obtaining a new customer is somewhere between 4-6 time more than it costs to keep an existing customer. So, if it makes financial sense to spend what ever you need to keep your customers, why are so many business owners spending so much money on acquiring new ones?
Let’s consider the three essential activities required to attain and maintain business revenue growth:
1. Constantly look to add new customers
2. Constantly look to increase each customers buying frequency
3. Constantly look to increase each customer’s average purchase amount
As I mentioned in the first paragraph, the first activity is foremost in each business owner’s mind (or should be). Many man hours and dollars are expended each year doing this and that’s why the advertising industry is so huge. Large companies are spending millions building name brand recognition in an effort to maintain market share. Smaller companies will try to emulate the large companies only to find out that what they really need is a constant flow of new prospects and a good story to tell them.
Although large companies focus on customer buying frequency, they find that they constantly having to re-invent themselves buy approaching different markets and demographics. If small companies tried to do this, they would be flat broke before they even had a chance to become medium sized companies. The smaller company must concentrate on providing service to their existing customers so they do not stray away to a competitor. A few ways to accomplish this is by offering frequent specials and introducing new products and/or services.
Let’s consider the options that business owners have that can bring a higher average purchase amount from each customer (current and new). The first option is called “Up-Selling” and is a deliberate attempt to get the customer to purchase more than they originally intended to buy. This happens constantly with radio and television advertising when the ad says call for your “Free” sample. Have you ever tried this? I have.
The person on the phone is very polite and excited that you called and begins to process your “Free” order by asking you for your name and address, etc., etc., etc. Then they ask (not sell) you if you would like to double or triple your order for a mere $10 plus shipping and handling. By doing this, they get you to receive more product which increases the original order as well as the chances of you re-ordering when you run out. In fact they may even offer a greater discount if you agree to an automatic monthly shipping program. Now they really have you.
The benefit to this “Up-Selling” process is this; even if the customer only wants the “Free” item, you have captured their information and can begin the process of building a relationship through marketing to them on a regular basis. Remember, the hardest thing to accomplish is to get them to call you so once they do, you must capitalize on any potential future purchases.
All businesses need to take a pro-active approach to getting customers to buy more or buy more frequently. This can be accomplished if you remember three simple (but powerful) steps:
- Always get your customers name, address, phone and email address
- Set up a process that allow you to communicate with your customers and ask them to order again
- Always offer an incentive when you are asking for more business
This is such a simple process, however it is rarely implemented. Evidence exists that indicates that businesses that do implement this approach easily double their profitably.
Take a proactive approach to increase your customers LTV. It may as simple as setting up an email auto-responder sequence that can be preset to include any offers you may be considering. Rest assured that if you do nothing, you are missing sales that are most likely going to your competitor.
Topics: Advertising, Internet Marketing, Marketing | No Comments »