The most effective and economical method of business growth is to prioritise customer satisfaction and retention. Unfortunately, this crucial strategy is often overlooked as we tend to take our customers for granted.
To refocus on your existing customers, it’s essential to understand their lifetime value to your business.
The Lifetime Value of a customer is calculated as Spend x Margin x Lifetime:
- Spend refers to the average annual expenditure per customer, or the total sales generated from a customer on average every year.
- Margin represents the profit earned from a customer, calculated as the sales revenue minus the costs associated with the sale.
- Lifetime indicates the average duration customers remain with your business.
Consider the example of a hairdresser: If a basic haircut costs $50 and customers typically have 8 haircuts per year, the average annual spend would be $400.
Assuming the cost of a haircut includes one hour of wages ($23) and minimal product expenses ($2), the margin per haircut would be $25, resulting in a yearly margin of $200 ($25 x 8 haircuts).
If customers, on average, remain loyal to the same hairdresser for 10 years, the lifetime value would amount to $2,000 ($400 x 50% x 10 years).
Knowing that each customer contributes an average of $2,000 to the business, consider strategies to delight them:
- Offer a welcome gift.
- Establish a loyalty program.
- Host special events for customers.
- Maintain regular communication through social media.
- Conduct in-store promotions.
- Enhance customer hospitality during wait times.
- Incentivise referrals from existing customers.
- Reach out to customers who haven’t visited in a while.
- Request feedback for continuous service improvement.
For tailored strategies specific to your business, consult with us for additional ideas!
Understanding the lifetime value of your customers and implementing strategies to enhance customer satisfaction can significantly impact your business growth. Let us assist you in developing an effective customer retention strategy.
