Know your customer’s value

One of the things I have learnt in my professional life is that very few companies take time to assess the value that their customers bring. Being a mum of two children means I have had to purchase a lot of diapers in my lifetime. My children usually go up to two years while still wearing diapers and I spend as much as US$50 per month together on diapers and wipes.

I calculated the direct lifetime value that I spend on diapers for my two children and it came to about
US$2 400. I market and sell Pampers or Huggies products to my friends, so there is the referencing value too.

You see, when women meet and talk, they talk about everything. I would like to categorise this as indirect lifetime value that I contribute as a customer.

Or for those that drink – an average professional person drinks at least three times per week, downing at least five beers per day. That comes to about US$15 per week and about US$6 000 per year on a minimum basis.

Before you all starting cracking your head, consider how much value each customer brings to your business. If you want a firmer relationship with your customer you ought to know what value they bring. Of course, the reality is that not all customers are created in and placed in equal categories.

However, you still need to know what that customer will bring to your bottom line. A lot of times businesses do not communicate and calculate this amount. Why then am I saying this?

You will need to know how much you must spend to acquire a new customer, or retain one. This will help you in acquiring knowledge on what you could do to increase a customer’s lifetime value, and by how much.

You will get assistance on which customer segments you should target to maximise profits, and even which customer segments that are bringing down your profitability.

Is it not amazing that you will even get to know how to increase the value of the customers you already have?
It is estimated that a person will buy an average five cars over their lifetime. Depending on where you acquire it from, the average you spend on each car is about US$25 000 per vehicle. The figure can go up to US$45 000 if servicing is included.

Car salesmanship says that you must spend at most three years with a car in Zimbabwe. Car dealers look forward to seeing you back in three years to purchase another car that’s why they spend a lot of time building trust around their brand.
The lifetime value (LTV) of your customer is largely the net dollars a customer contributes over their life as a customer. Lifetime Value (LTV) = Total Customer Revenue – Total Customer Costs

Some time ago, I bought a hoover which lasted for about a year before it started cranking. I went back to the shop and to my surprise even though the guarantee period was about to expire, they gladly replaced it with a new one. The replacement has lasted for more than three years without any problems and it is still in good working order. Because of that I have spent a few thousands on buying all my electrical gadgets from that shop.

How much could it have cost them to absorb the costs of the faulty hoover I returned, probably US$50. Given the thousands I have spent what is the return on investment for that shop from my purchases.

It is always shocking to me how much money companies are spending on attracting a new customer, yet they devout so little to retain an existing customer.

A customer gained should never leave at all costs? I can count the very few companies that have an advert that speaks to the existing customer, it is all about the new customer. If your company is guilty as charged then I strongly suggest that it is time for a shift.
Till next week, may God richly bless you.