The Lifetime Value of a Customer (Both Kinds)

     It is a management function to determine the lifetime value of a customer. This information is then used to determine how much cost and effort should be expended to acquire and keep a customer. There are two different kinds of lifetime value of a customer.

     The first value is obvious—the repeat business and profits that they represent. The second value is less obvious, but can represent much more value to you. It is your customer’s referral value to you, for a lifetime. Regarding the direct income from acquiring a customer, it is very important to measure the potential profits over time, especially since there is very little additional marketing expense to get repeat business from existing customers. Most of the additional marketing “costs” should be from providing super service, as needed.

     Any effort that binds your customer to you is what reduces the risk of losing them to a pirate. “Priority Status” discounts, unique services, no overtime charges for maintenance agreement customers, added value for special regular customers, or coupons for free or reduced cost on consumable supplies like printer paper are all ways to lock them in to repeating business with you.

     A second way for you to get repeat business is to entice them to patronize you more often. This can be done, again, with specials, seasonal offerings, unique products, once-a-year specials, or reduced fees or minimums when your customer gives you another location.

     The lifetime referral value represents more potential business than the first, and as such, is more difficult to predict. However, there are no marketing costs for referrals, unless you use one of the suggestions for developing referrals at a predictable level. The one-time-sale can even become a Lifetime Value because of its referral potential. I have seen businesses give away a product or service because of the referral value, or, sometimes more importantly, to get testimonials for a start-up business or new product line. Nothing has more credibility than a verifiable testimonial from a third party who has nothing to gain by the endorsement.

     Next time—“Marketing of Perception”—perception is reality!