Lifetime Value of a customer is the average sale price,
multiplied by the number of times a customer buys from you in a
year, multiplied by the number of years that person remains your
customer.
For example, lets say you own a hairdressing salon and your
regular customer spends $70 on average, of which $40 is profit.
Your customer makes a hair appointment 10 times a year and they
stay with you for an average of 3 years. This means that your
regular customer is worth $40 x 10 x 3 = $1,200 in profit.
You can use this same formula for a restaurant, a car service
centre, dentist, clothing retailer and so on. I have been going
to the same dentist all of my life. When you start to plug in
numbers where the loyalty factor is very high, the Lifetime Value
of the customer will simply amaze you. And it doesn't stop
there...even if you sell high value items such as white goods,
office furniture, pools and spas or seemingly one off type items,
there is always the service contracts, spare parts, complimentary
products and customer referrals that all add up to extra sales
and profits over time.
So armed with this valuable information, how does it give you the
marketing edge?
At the start of this article, I mentioned the 10% discount SALE.
Everyone seems to do it, so why not you? I don't know about you,
but a 10% discount offer does not get me excited enough to hop in
the car and drive to the store to make a purchase or experience
someone's service for the first time.
But what if you were to offer something for FREE.
Aaaagh!! Shock horror. I couldn't give something away...I
would go broke! This is the sound that I now hear reverberating
over computers screens as business owners read this article.
Well, lets take a breath and have a calm, rational look at this.
Take the example of the hairdresser. What if a hairdresser was
to offer a FREE style cut to attract new customers to their
salon. The cost in labour and products for the FREE style cut
would be around $10 to $15. If the person that takes up this
offer becomes a loyal regular customer, the Lifetime Value to the
salon of that customer could be as high as $1,200 in profit. Do
you think that the cost of $10 to $15 is worth it? You bet it
is.
Here are some other examples:
* Restaurant - free main course
* Accountant - free consultation worth $150
* Bowling centre - free game
* Car service centre - free muffler check
* Clothing retailer - Gift voucher for $20
Because you know the Lifetime Value of your customer, you know
that you can afford to "buy" a new customer...and there is no
better way to break a person's buying habit and attract them to
your business than to offer them something for FREE.
But wait!!!
Before you get all excited and start making FREE offers to the
world, a word of caution.
Make sure that you have calculated the Lifetime Value of your
customer. Then, like with any marketing promotion, test your
offer on a small scale first. When you have analysed the results
and are confident that you will be able to maintain customer
service standards, roll out your offer on a larger scale.
Put this marketing strategy to work and you'll not only surprise
yourself, but also your competitors.
Stephen James specialises in teaching small business owners
powerful sales and marketing systems that unlock large amounts
of untapped cash within their business for low or zero cost.
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