Lifetime Customer Value

What is a customer worth to you?
We often have this discussion with our new clients. Very rarely do we find that they have truly thought through the real value of a customer. They are usually so focused on the present that they forget the future opportunities that are available to them.

When we think of the value of our customers we often think only of the order that is in front of us. Some of our clients are selling commodities and are getting orders several times a month, or year, and they will think often in terms of the annual spend that the customer has with them. That goes some way to answering the question accurately, but how long does the average customer stay with you? When you know that, you are in a position to accurately work out the true customer value.

So, average customer value is the Average order value multiplied by the number of times they order per year, multiplied by the number of years they stay with you, and averaged out across all your customers.

Why is this important? Simply because it makes it possible for you to decide how much you are prepared to spend to get a customer. Winning customers is really difficult, and most of us have to go to great lengths to achieve that. Most of the business owners that we meet just don’t appreciate the lengths that are really necessary, and, as a consequence, find it extremely difficult to win new customers. They often fall at the last, or last but one hurdle, which, if they only knew it, would be even more frustrating for them.

When you are trying to get someone to buy from you for the first time you have a major barrier to overcome. We call it inertia (Resistance or disinclination to motion, action, or change). Inertia comes from many motivations, including fear of making a mistake, uncertainty about the value of your offering, loyalty to existing suppliers, and good old procrastination. In order to overcome inertia you need to do something dramatic. Maybe it is creating an offer they can’t refuse, maybe it is showing a level of persistence that is beyond the normal human. Whatever it is, you need to do it, and it is impossible to justify the effort that takes when all you are looking at is the first order that the customer will place with you.
So, here’s the thing; for many businesses it makes good business sense to lose money on the first order (or the first few) as the long term benefits of dealing with that customer will make those initial losses look like an extremely good investment

Are you too busy to succeed?

 

When I went to sales school back in the 80’s every training company had a variant of this cartoon.

I think it was supposed to inspire us to recognise that there are lots of people out there who need our service – we just need to get their attention.

Well, these days I am not so sure. It seems to me we need to do much more than just get people’s attention. Let me explain: probably 80% of the business owners we meet admit to having a major part of their business that they are not happy with. It may be they need to streamline their production processes, or they may need to generate more leads. Many people need to improve their conversion ratios. Whatever it is, they see the need for it, and they see the benefits it can bring them.

Here’s the thing – only 1% of the people we meet, in spite of the fact that they recognise they need to change, will actually do anything about it. And why not? Usually they believe they are too busy.

There’s the guy who is working 18 hour days and is desperate for a better work life balance. What does he do? He keeps on with the 18 hour days – after all, he is too busy to slow down.

There’s the woman who is generating 60 enquiries a week, but only converting one or two into business. She knows she needs to improve her conversion rate but she is too busy generating enquiries that she can’t close to stop and work out how to convert them better. Never mind it would take her less effort. Never mind she would make more money – she just has to keep on going. Too busy to stop. Too busy to try anything new.

So, why do people do it? Why do they continue to punish themselves? Well, our theory is that they are afraid of change. They don’t admit to that of course – no, they tell themselves they’ll just get the next couple of actions done, and then they’ll take a fresh look at the business. And the next couple of actions become three, four, five, and so on. Nothing changes.

Making lasting change to our business is challenging. We have to stop what we are doing and risk losing some money while we re-evaluate things. We have to face up to the fact that we have been doing some things wrongly for some time, and we have to be prepared to change, to risk new ideas, and to leave our comfort zone.

Perhaps it’s no surprise then that so many business owners are like the medieval king trying to win the war, and missing a secret weapon. However, for the 1% of us who are prepared to stop and think, and are brave enough to challenge what we have done in the past, and to try something new, this is great news; because it means that we are going to leave our competitors way behind, still doing what they always did, and still hoping for a better result.



Even plants prosper from planning and process!!!!!

I thought I’d show you a picture of our Azalea. This was taken last year (2010) just before Christmas. As you can see, the Azalea is a picture of health, and a great pleasure to have around the house.

Sadly, it was not always so. The plant has been with us for a couple of years, having been given to us by Ginny’s father, who had kept and developed it over a number of years. Since it came to our home, I have to admit it has been a pretty sorry specimen, producing no more than a few buds, which then turned brown and died. This, despite our care in keeping it safe from the frost, and watering it carefully every time it showed signs of life.

So, what changed this year? Well, we just didn’t know; we were simply grateful to have such a brilliant show of colour in the house. Only when we discussed our great fortune with Ginny’s father did we learn that one of the most critical times to water an Azalea is in the year before the flowering season. In other words, the plant had been watered really well the previous November and December (due entirely to weather conditions, and through no intent of ours), and consequently flowered so brilliantly this season.

That parallels so much the work we do with our clients. It is natural to think that success in selling is just about saying the right thing at the right time. In fact, while that is important, it is also vital to have in place the processes that give you the opportunity to say the right thing at the right time. Very few people understand that fact, and yet, the biggest thing that most of us can do to improve our sales performance is to put in place and follow through a process that generates us regular, qualified, high value opportunities.

Most of our clients tell us that they are great at sales once they are in front of people. Getting in front of them is the big problem. Our experience is that it is important not only to get in front of people, but to get in front of the right people regularly and consistently.

We only discovered the secret of cultivating Azaleas as a result of a chance event (the rainy season last Autumn). Without that, and our discussion with Ginny’s father, we would be completely in the dark, and would no doubt have a poor showing again next year. As a result of working with us our clients now know how to have consistently good sales years every year – and now you do too.

If you would like to know more about how to put in place successful processes for your business have a look at our web site www.precept.uk.com , or call us on 01509 415901 for an informal chat.