Rule #8: There Will Be a Way to Expand Life-Time Value
Life-Time Value is one of the least understood, yet most important, marketing concepts you can learn. Simply stated, Life-Time Value (LTV) is a measure of how much your customers are worth to you over time.
If you can get an accurate read on this metric you can use it to estimate future revenue, make budgeting decisions, decide on promotional campaigns, etc.
Let's talk about how you calculate and use Life-Time Value. Admittedly, this is a simplistic example, but it will serve our purposes for now.
Let's say you have an average ticket (how much in dollars you get when someone buys from you) of $50 and your customer buys from you every month for three years on average. That customer’s Life-Time Value to your business is $1,800 ($50 X 12 X 3).
Now that number is extremely important to you for a couple of reasons. One, it tells you how much a customer is really worth to you. If you are just looking at each transaction individually you might think that each customer isn't worth that much. In our example above you would (erroneously) conclude that each customer is only worth what they pay you today, or $50.
If you think that each new customer is only worth $50 then you might only be willing to spend $5-$10 to get them as a customer. After all, you have to make a profit on the transaction right?
But if you see that each new customer is really worth $1,800 to you over their lifetime then you are probably going to be much more willing to spend more to acquire them. You might spend as much as $200 to get them as a customer under that assumption.
Who is going to win that game? The guy spending $5 to get a new customer or the guy spending $200? The guy spending $5 is going to be sitting around scratching his backside wondering how the hell guy #2 is getting so many new customers while he’s struggling to make ends meet. The answer lies in his mindset. His mindset is that he gets a customer to make a sale. Guy #2’s mindset is that he makes a sale to get a customer.
That’s so important I’m going to repeat it…
Most people get a customer to make a sale when they should be making sales to get new customers.
The value isn't in the sale per se...it's in acquiring the customer.
A lot of places marketers fail is that the Life-Time Value of their customer is too low and the cost of acquiring them is too high. When that happens you can go belly up pretty quickly.
So, Rule #8 is about figuring out how to expand the Life-Time Value of your customers. There are three basic ways to do that...
1) Sell more stuff to your customers
2) Sell more stuff more often to your customers
3) Keep those customers for as long as possible
Sell More Stuff to Your Customers
Because acquisition costs keep rising and the cost of doing business is getting more expensive you have to have a cross-section of products or services that you can offer to your existing customers to keep them spending money with you.
Think about the last time you bought a new car. As soon as you’ve said yes to buying the car they immediately launch into selling you all the upgrades and accessories you can handle. Do you want satellite radio installed? What about some DVD players in the backseat for the kids? Wouldn’t you prefer the leather interior instead of the cloth one?
And it works. Most people, after dropping $30,000 on the car, think “Well, that DVD player is only an extra $400…why not?” And they are sold! You need the same type of mentality. As soon as your customer has purchased you need to be following up with them to sell them something else.
Have you ever ordered something from Amazon? Chances are, when you got your package in the mail and opened it up there were included several flyers and/or coupons to purchase additional items. When you call into most places now to order by phone they are usually trained to try and sell you other items with your original purchase. Web sites even do this on the order page now. There are virtually hundreds of ways to sell more to your customers immediately.
So what can you sell your customers? The list is virtually endless but here are a few ideas to get you thinking…
Upgrades – do you have several versions of the same product, each one costing a little more than the one before it? Think “basic or deluxe” or “bronze, silver, gold” programs. I know of several publishers that offer a digital, PDF version of their home study course that can be upgraded to a bound, printed version for an extra $100.
Accessories – these are items that can be used in conjunction with your product/service to make using your product or service easier or as natural extensions of your product or service. We already talked about how car dealerships do this. What about in your business? What accessories can you sell with your initial product or service?
Similar, yet unrelated products/services – I have a friend that sells financial services that offers a coupon to his clients to get their will done by an attorney (who then pays my friend a commission for the referral).
Bundled items – recently Taco Bell has been selling a box of food for $5 that contains several different items that usually sell for around $1 a piece. By bundling them together and charging more, Taco Bell is increasing its average ticket price for each purchase. In other words, instead of someone typically spending $3-$4 they are now spending $5.
New products/services – maybe you have developed a new product or service that your customers would be happy to purchase from you. It might even be an old product that you have re-invented and added value to.
These are just a few ideas that you can use to sell more of your stuff to existing customers. Use your imagination and be creative. Above all, strike while the iron is hot and sell more of your stuff as quickly as you can to those new customers you are acquiring.
Sell More Stuff More Often to Your Customers
There are some things that you can do to get your customers back in more often and make purchases, but the single most important thing that you can do is to simply stay in front of them on a consistent basis with your back-end marketing. This can’t be over-stated enough. The number one reason customers will leave you is because they feel like you don't really care about them or are interested in them.
To keep this person interested in you then you having to be engaging. Interesting. Interested. You have to be consistent. Make them feel like they are the most important person in your life right now. Because if you don’t, then someone else will. And when they leave you for that someone else you’re going to be sitting there scratching your butt wondering where it all went wrong. So don’t be a doofus. Stay in contact with your customers.
Here are some other ideas that you can use to get your customers to frequent your business more often…
Special sales just for current customers – everyone loves a sale. And you should reward loyalty by offering special events that are just for your select customers. And when you do, make sure they know it is just for them. Make a big deal out of doing something special for them.
Sneak peaks at upcoming product launches, events, etc. – similar to the first idea, let your customers see, in advance, what you are up to. They will feel part of an exclusive club, so to speak, and appreciate you keeping them in the loop.
Stay in touch just to stay in touch – you don’t always have to be selling or pitching something to your customers every time you contact them. Sending them a postcard that simply says, “Hi, we were thinking about you and your family…hope everything is going great for you!” is unexpected, surprising, and thoughtful…not to mention inexpensive. Let them know that they are more than just a customer. They’re your friends too.
Customer Appreciation Days – fun events for your customers and their friends and families can be a great way to show them you care about them. It’s also a fantastic way to generate referrals and meet new people. Be creative and interesting and above all, have fun.
Always take advantage of seasonal holidays – Christmas, Thanksgiving, New Years, July 4th, Memorial Day, Labor Day, etc. There are tons of holidays that you can center your sales promotions around.
But don’t forget about other important dates like End of/Back to School, anniversaries, birthdays, your company’s anniversary, etc. These are great ways to anchor sales promotions to important dates in your customer’s life.
The stronger your relationship is with your customer, the easier it is to sell to them. Think about your own buying habits. Chances are, the places you buy from the most are the places you feel the most welcome. You may have a friendly relationship with the sales rep or owner. You probably feel like they care about you and what’s important to you. This is the way you want your own customers to feel about you as well.
Keep Those Customers For as Long as Possible
The last step in the process is that once you have gained a customer and begun communicating with her, you now want to make sure she stays a customer for as long as possible. By implementing the first two steps this should be much easier to do.
You have to keep in mind that your customers’ job isn't to remember who you are…it’s your job to remind them on a consistent basis that you are here and that you have just the products or services they need to solve their problems. A lot of times people don’t do business with you because they simply forget about you.
You shouldn't take that personally. Just look at it as a fact of life. Your main job is to make sure that doesn't happen through your back-end marketing process. Implementing steps two and three on a consistent basis will help you do that.
So how long should you market to your customers? For as long as it’s profitable. Sometimes though, it seems like no matter how many times you market to them they won’t come in and purchase. Every business is different but you need to pinpoint a time frame of when you designate a “current” customer as a “former” customer.
For a hair salon this might be if they haven’t been in to see you for six months or more. For a dentist it could be a year. And for an optometrist it might be a couple years. Business-to-business customers could be anywhere from 3 months to a year (or longer) as well depending on what they are selling. Whatever business you are in, try and figure out when that time comes for your own customers.
Next you will want to go through your customer list and separate all the “current” customers from the “former” customers. Using your “former customers” list you can run them through another front-end marketing campaign just as you would for new customers to try and "re-convert" them. Just remember that your current and former customers are two of your most profitable sources of revenue.
These are the three areas where you can begin to expand your customers' Life-Time Value. Doing so will take you to greater levels of profitability and stability.