Monday, August 23, 2010

UNDERSTAND YOUR CUSTOMER’S LIFETIME VALUE


Do you know the value of your customers? You MUST! Most are busy trying to get NEW customers without understanding that it is less expensive and more rewarding to keep a customer than to get a new one.

To start, you will need to know the average sale per customer, the average number of times per year they purchase, and how many years an average relationship lasts. You may not know the exact amount of the acquisition and maintenance costs, but I recommend estimating on the high side. The number of referrals will vary over the life of a customer based on the industry.

Example:

- Average Sale: $100

- One sale per month for a year: $1,200.00

- 10 years average relationship: $12,000.00

- Acquisition cost: less $100 = $11,900.00 remaining

- Maintenance cost: less $100 = $11,800.00 remaining

- 5 referrals and their value - $59,000.00

Those who really understand the Lifetime Value of their existing customers will work the hardest on customer retention, customer service programs and they will do a lot to stay in touch and reward their existing customers. Do YOU?

You see coupons everywhere, in every type of business. Consumers clip and use them, and they must be a part of your advertising, too. But, there’s a BIG secret about coupons that you don’t know. Next tip, I’ll tell you the secret!

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