A key concept in understanding your business and it’s marketing plan is the true value of your customers. Finding new customers is one of the primary functions of your marketing plan, but not the only. Think about the long term life time value of your average customer.
While you may make money on the first transaction you get from a new customer, the long term value is in all their subsequent purchases for most businesses. If a barber had a new customer who came in once, teh value would be that one haircut. If that person came in once a month, the annual worth of that customer would be tweve times as much.
If they get their hair cut every two weeks, they are worth twice as much. Suppose the typical person in the barbers home town moves every five years. In that case, they may assume a life time value of five times the annual value.
Now not everyone will keep coming back forever. Therefore you need to estimate this lifetime value with as good a sense of attrition as you can come up with. Recognizing that people will leave is a critical reason to make sure you are constantly marketing to attact new customers. We will talk about this in another post.
If your product cost more than a haircut, that value is correspondingly greater. Now if your typical customer buys infrequently or only periodically your calculations need to reflect that.
Now there are several reasons to evaluate this concept of life time value. First, it can help you justify the money you spend on your marketing efforts.
Beyond setting your marketing budget, this concept should also help you think about ways in which you can grow that lifetime value. Is there anything you can do to lengthen your customers lifetime? Can you develop a personal relationship so they still come back for their haircut even after they move to new suburb in your metro area? So build a sense of identity or relationship with your customers may help build the long term value. You of course already know this. But think in terms of this constuct and build rapport with your customers.
If you can find ways to get people to spread the word, through positive reviews, outright referrals or just positve word of mouth, you have added to their value. Any new business they send is worth at least as much as you now have to pay to recruit a new customer. And probably more, as the new customer is already warmed up to you.
Additionally, you may well be able to move them up a ladder from a hair cut to a haircut and shave or what ever might be equivalent in your business. You may design your business around offering an entry value or deal and then move customers to higher level or services as they build trust and familiarity.
The hardest person to get to buy is someone who has never purchased from you before. Once they have, they are far more likely to be willing to do so again.
As you contemplate your business and your marketing you want to focus on both the new customer and your existing ones. As you put together your long term business and marketing plans be sure to keep the idea of each customers lifetime value to your business front and center.