The simplest and most cost-effective way to grow your business is to retain your customers by keeping them happy. Unfortunately, we often take customers for granted and overlook this strategy.
The most practical way to bring the focus back to your existing customers is to understand their lifetime value to your business.
The Lifetime Value (of a customer) = Spend x Margin x Lifetime
Spend = the average annual spend that customer will have with you. Or put another way, the total sales you make from that customer on average every year.
Margin = the profit you make on that customer; the sales to them less the costs of making that sale (the costs are often referred to as variable or direct costs and include such things as materials and labour).
Lifetime = the average number of years customers are retained for in your business.
Let’s look at the example of a hairdresser. Imagine the cost of a simple haircut is $50 and people have on average 8 haircuts per year. The average spend is therefore $400 per annum.
The cost of a haircut is one hour of wages ($23) and a small amount of product ($2). The margin is then $25, or 50% per haircut or $200 per year ($25 x 8 haircuts).
Let’s say that on average, customers stay with the same hairdresser for 10 years (lifetime = 10 years). The lifetime value is therefore $2,000 ($400 x 50% x 10 years).
If our example hairdresser remembered that, on average, every customer (new or existing) is worth $2,000 to the business, what could be done to delight that customer?
Here are 10 ideas to improve customer rentention:
- Provide a welcome gift.
- Develop a loyalty programme.
- Run special events for customers.
- Keep in contact via social media.
- Run in-store promotions.
- Improve hospitality to customers while they’re waiting.
- Reward them for referring new customers.
- Follow them up if you haven’t seen them for a while.
- Ask for feedback on how service can be improved.
- Ask us for 10 more ideas specific to your business!
What is the lifetime value of your customers to your business? What do you do to delight your customers?
We can help you develop your customer retention strategy.
“It takes months to find a customer and only seconds to lose one.” – Vincent Lombardi