Grand Rapids, MI – When you look at a customer, what do you see? The temptation can be to look no further than the first sale, especially if it’s substantial.
True worth to your business, however, is found in your customer’s lifetime value (LTV), simply defined as the projected revenue a client will generate during the lifespan of your relationship.
Here’s a basic formula to determine average LTV:
(average value of a sale) X (number of repeat transactions) X (average length of a typical customer relationship in months or years)
Using this formula, here’s an example of a housekeeping service whose typical customer spends $200 per month over five years:
$200 X 12 (months) X 5 (years) = $12,000 LTV
LTV gives you a better gauge of how much to invest in customer acquisition. So, to determine the right investment in marketing programs, rather than calculating the number of single purchases needed to break even on a campaign, consider the repetitive nature of your sales to measure ROI.
For the housekeeping service example, a $10,000 direct mail campaign using a one-time sale value of $200 would require 50 new customers to break even.
Using the true LTV, one new customer actually pays for the campaign and is a more accurate representation of the impact the program has on your business.
LTV will vary by business and industry, the length of the sales cycle, and acquisition and retention costs. As a general rule of thumb, a stable business with solid products/services and good customer service can expect the average relationship to last five to seven years before a customer is lost through natural attrition: a death, relocation, job change or another business relationship develops.
5 Ways to Drive Longer Relationships and Boost LTV
1. Keep them happy. Pay attention to small things that might cause a profitable customer to leave you prematurely. A website with easy navigation, the prompt return of a phone call and speedy resolution of an issue add up to a positive customer experience.
2. Upsell and cross-sell. Introduce new products or services that will either increase purchase frequency or raise the amount per sale among existing customers.
3. Create advocates. According to Nielsen Media, the average value of a referred customer is at least demographics and acquisition time. An automated referral program simplifies your set-up, management and follow-up to generate new revenue opportunities.
4. Be valuable. Look for ways to provide more value that cost your company little or nothing. Share educational information, invite your best customers to a “pre-sale” or make personal deliveries.
5. Say “thanks.” A regular “thank you” note or email after a purchase, birthday or anniversary card, or a year-end gift are tactics that are welcomed, appreciated and remembered.
Allegra is independently owned and operated and is a member of Alliance Franchise Brands network, a world leader in marketing, graphics and visual communications, linking more than 600 locations in the U.S., Canada and United Kingdom. For more information, call (616) 248-4110 | (616) 786-3101 Holland or visit http://allegragr.com.