Friday, April 27, 2007

how much is customer worth to you? - Drayton Bird

I'm on a mailing list for Drayton Bird's Helpful Ideas. He's sending out 51 helpful ideas each day. Today's was number 35. Today's helpful idea is - how much is a customer worth? Not many people think about long term customer value. Drayton helps to explain why you should.
Remember, the currency of your business is customers - and act accordingly.

So the big marketing question is, "how much is customer worth to you?" If you've been in business for a while you can measure how long customers stay with you, and how much profit they provide in that time.

Then you discount the sum to determine what you can afford to recruit and retain a customer, allowing for a profit.It is true that some sales are not repetitive, but in those cases you can often, if not always, cross-sell other things.

The importance of customer value came home to a client who sold what they call an fmcg (fast moving consumer goods) product here - and packaged goods in the U.S. He asked me, "If the gross margin on one sale is 80 pence, how can I afford to send out direct mail at 100 pence a time?" I asked him if he knew the average value of a customer over time - not just one sale. He said he'd never given it a thought. And I said, "You can easily afford it if you know your average customer buys 200 packs a year and stays with you for five years - and you think not about making an immediate sale, but making and keeping a customer". He became my largest client. The same principle applies if you work out how many cars you can sell a customer over a lifetime. You can afford a series of very expensive direct communications - DVDs, books, lavish mailing packs and so forth.

But it all starts by thinking in terms not of expenditure, but return on investment, and taking a lot of trouble to try and assess what a customer is worth.

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