Your current customers or clients are your most important assets. Yet many businesses think of their customers as one-time, single point acquisition individuals. The question is, how much are they truly worth to the business enterprise? How much money or how much profit will a business realize from each of its customers over their buying lifetime with them?
This is such a significant concept, that just understanding this can have a bigger impact on a business than just about anything else they can do to sustain revenues and profitability. Not only will they generate more revenue from a customer who buys their product or service more than once, the business enterprise will also reduce the cost of acquiring that customer by not having to work as hard for the second sale. In addition, if that customer is pleased, they can potentially become an evangelist and/or a positive testimonial for their products or services. Once understood by the business enterprise, a whole new set of factors will come into play that can revolutionize the way they look at their business, the way they do business, and the profits they will generate as a result.
Every business enterprise owner is familiar with these three concepts:
• Keeping existing customers is less costly than acquiring new ones.
• Eighty percent of business comes from 20 percent of an acquired customer base.
• Referral business is the best way to obtain new business.
It is understandable that keeping customers and developing customer loyalty brings value and goodwill to a company. Without doubt, it is one of the most vital reasons that contribute to the success of a business enterprise. And most all business owners and employees know customers are one of the most valuable assets a business can have. But just how valuable are customers to a business enterprise? In a 1994 Harvard Business Review study, Putting the Service-Profit Chain to Work it was found 'an increase of 5% in customer loyalty can increase profitability by 25-80%.'
While this finding give emphasis to the importance of customer loyalty, it is even more beneficial to understand exactly how much a customer is worth to a business at the present. This concept is well-known as the 'Lifetime Value of a Customer.' There are several ways to calculate the lifetime value of a customer to a business enterprise. No matter the gauge, producing a real dollar figure gives the business enterprise a definite point around which to design customer retention strategies and promotional campaigns.
The computation does not determine profit, rather a comparatively accurate estimation of the customer's value to the business enterprise over the course of the customer's lifetime. Undoubtedly, customer retention should be among any business' most important priority. However, success does not occur in a void. Excellent customer retention rates result from customer satisfaction. This, in turn, results from the business' sustained ability to provide value at all contact points with the customer. When a business enterprise has satisfied customers, it will benefit by having acquiring strong referral base.
While designing long-term customer retention strategies or assessing the cost of losing customers, calculating the lifetime value of a customer to a business enterprise can provide a sobering illustration of the results of a business' hard work The conclusion will be do everything you can to create loyal customers for sustainable profits.
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