CUSTOMER LIFETIME VALUE
You have all heard that retaining an existing customer is less expensive than finding a new one. With most products and services, there is a “lifetime value” that a customer has. Let me site two personal examples:
- I leased a new car several months ago. I have been leasing my work car for many years. I take a three year lease and somewhere between my 30th and 36th month I start looking for another vehicle. For the last 4 leases, I have stayed with the same automobile make. Most salespeople work on a commission; in my case they can count on me to be a customer every three years. When driving a new car, I am frequently asked how I like it. Yes, I am in a position to give referrals. Back to my story, the sales person who sold me the car never did ask how I liked the car, nor did he ask for any personal information such as where do you work, birthday or anniversary, etc. I figure that over the next nine years I have a Lifetime Value of at least another 4 to 8 sales.
- My second story has to do with my insurance agent. Some time ago I received a form letter that all my policies were up for renewal in the next few months along with my new premiums. Since I have four policies with this company, I placed a call to my agent of record as well as her assistant asking for a call back to review the quotes. Again, I did not get a return call from either person. At this point I will be changing insurance firms again. In my business I have an opportunity to refer many people to an insurance company.
The survival in both of these industries is rather short and the failure rate very high. If either of these two salespeople would take time to figure out the lifetime value of each of their customers they would pay a lot more attention to their current customers.
I am sure that each of you can share similar stories with sales people in both products and service situations. Most service providers seldom have a customer retention program; think about your air conditioning, your plumber, your painter, etc. Much money is spent on direct mail, advertising, online marketing with the hope of getting new customers.
Look at your own business. How much time and money do you spend to gain a new customer? Do you have figures on the lifetime value of your current customers? Do you have a retention plan in place?
While this is not your Tuesday challenge, take some time and work out the lifetime value of a customer, and then work out a retention marketing plan.
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