Customers for Life – wouldn't they be nice? Find them ,and they just keep on coming back and your business quietly continues and grows – no marketing required. This may sound like a dream, but it does not have to be.
Perhaps surprisingly, we all have the opportunity to create Customers for Life and for making those customers into advocates for you, so as well as not requiring marketing, you can almost do away with sales as these customers become your sales force – unpaid.< /p>
It costs about six or seven times (on average) as much to find a new customer than to keep an existing customer happy. When surveyed most people who have changed supplier state that the reason that they made the change is because they had been forgotten by the previous supplier, or they did not know who their previous supplier for the product or service in question was.
As well as the cost of acquiring the customer, there is another reason for working hard to keep a customer. In general the longer that a customer stays with you, the less likely they are to want to change their supplier. And, as a customer stays with a supplier, typically their order size and frequency both increase. And, over time the cost of servicing those customers tends to decrease as they get to know who you work.
The lifetime value of a customer is an estimate of the total revenue brought to you by each customer. For a business to be profitable, this value must be positive i.e. the income must be greater than the cost, including the cost of acquisition.
Lifetime value is typically used to judge the appropriateness of the costs of acquisition of a customer. For example, if a new customer costs $50 to acquire (COCA, or cost of customer acquisition), and their lifetime value is $60, then the customer is judged to be profitable, and acquisition of additional similar customers is acceptable. Once the average lifetime value of customers in your business is known, especially by subgroup, you are able to influence the buying behaviours of other customers and so increase the lifetime value of these customers and hence the benefit to your business.
|Customers||100,000||60,000||42,000||Number of customers remaining based on
retention rate and number at start of year
|Orders per Year||1.8||2.5||3|
|Average Order Size||$90||$95||$100|
this year from these customers
|$16,200,000||$14,250,000||$12,600,000||Orders per year * average order size * number of customers|
|Cost of Sales||$11,340,000||$9,262,500||$8,190,000||cost percentage * total revenue|
|Customer Lifetime Value||($6)||$26||$53|
The table above shows the lifetime value of a list of customers who were acquired by purchasing a list of 100,000 names. In the first year 40% of them left and the total return on each customer was a $6 loss. However, due to reduced churn, increased frequency of purchase and larger purchases by the end of the third year each remaining customer is worth $53 profit even though the total revenue has decreased. This strongly illustrates the value of keeping existing customers happy.
A few years ago, I had an experience which highlighted this point very highly to me. I received an invoice from my accountant which was significantly larger than I had anticipated.
When I called to discuss this bill and to understand why it was so large, he repeately failed to keep his own commitment to call me back.
Add to that, he was unable to give me any indication of how the invoice had been calculated, and it transpired, that he had just increased the bill from the previous year, even though less work had been done.
Needless to say, I now have a new accountant, who works on a fixed fee.
So, with Customers for Life as our advocates, we can have six or seven times the customers, or even more, for the same sales and marketing budget. Any (right minded) business person would jump at the opportunity of increasing their bottom line as readily as this.
Churn is the rate at which customers leave a business and it a metric that you want to keep as low as possible. It is to maintain a low rate of churn that organisations particularly utility companies and telephone companies lock you into contracts and will make you offers when your contract is nearly at an end, or if they hear that you are about to move to a competitor, even though the same offer was not available to you earlier.
The answer is to have processes in place so that customers do not feel forgotten, or better still, processes that can make them feel special to you.
One financial planning client of ours records in their CRM how his clients take their coffee or tea. This means that when a client arrives for an appointment (which may only happen once or twice a year) his assistant is able to bring the preferred drink without asking.
Using the communication management functionality of a CRM solution also allows you to ensure that all your follow up calls or visits are made, even when a staff member leaves. This means that your customer loss when a staff member leaves is much lower.
CRM can also enable you to communicate with your entire customer base at appropriate times including at specific times of year e.g. their birthday or other anniversary. And by using the automation of CRM, much of this can happen on autopilot, but still appear fully personalised to the client.
If CRM is used to help you with your sales cycle you will also know who has purchased what from you so you can communicate:
A recent client of ours, Carlo, the CEO of a Registered Training Organisation told me how his sales team had become completely hung up on the thrill of the chase, so they were constantly chasing new customers and completely ignoring the existing customers. And yet, his team more than most are in the perfect position to create advocates from their clients. When they sell a training program to a client, it is typically a two year agreement. But by applying appropriate follow up they can achieve several huge benefits:
We will be implementing these processes for them to leverage their existing investment in CRM.
This is just one example of how CRM can help businesses of sizes can get more for less by implementing CRM. Many people see CRM as just a glorified address book. But it is so much more.
For an initial chat about how you can get more for less from your marketing budget please contact us.
Opsis is an expert Microsoft Dynamics 365 CRM consulting company. We are not an IT company, nor a management consultancy, although we often work with both of these. Our focus is wholly CRM success, with Microsoft Dynamics 365. We are based in Sydney, NSW, with clients in Sydney, Canberra, Melbourne, Brisbane and across Australia. Our range of Microsoft Dynamics 365 services include CRM strategy, CRM scoping, Dynamics 365 implementation, technical support and Dynamics 365 training.