Every business knows that loyal customers are valuable, but how valuable?
Statistics show that the probability of selling to a current customer is 60-70 percent, while the probability of selling to a new prospect is 5-20 percent. That’s reason enough to work on repeat business, but is there a way to figure out just how much a loyal customer is worth to your business? Yes, there is.
We’ll show you how to figure out the lifetime value of a customer, explain what the number tells you and give you some pointers to increase the value of a customer over time.
How to figure out the lifetime value of a customer
To figure out just how valuable a customer is over the course of a lifetime, you’ll need access to a few statistics.
The lifetime value of a customer, sometimes refered to as LTV, is different for every business, so you’ll need to crunch some numbers. Don’t worry, there are online tools that will do the crunching for you, all you have to do is gather the numbers.
This tool from RJ Metrics requires three pieces of information: the average order value, repeat purchase rate and customer acquisition cost. Here’s another option from Pro Social Tools that factors in customer referrals.
What the lifetime value of a customer tells you
The lifetime value of a customer provides valuable information for a business. By knowing how much money a customer will likely generate for you overtime, you can redefine budgets and focus on sales and marketing strategies that improve your company.
For example, you might want to adjust your marketing and advertising budget to focus more on customer retention rather than customer acquisition. In other words, you might want to work on repeat business, rather than drumming up new customers.
The lifetime value of a customer can help a business focus on long-term profits, rather than short-term gains. Campaigns that focus on customer loyalty and improve overall satisfaction, for example, might take precedent over efforts to boost this month’s revenue.
For companies seeking additional funding, the lifetime value of a customer is a key statistic. A solid LTV provides the reassurance that many investors need to make a commitment.
How to improve the lifetime value of a customer
Once you calculate the value of a customer, remember, it’s not set in stone. You can – and should – make efforts to improve that number. Here are some tips to do just that:
- Ask for (and act on) customer feedback
To make improvements to your business, start by asking customers what you can do better. Ask for feedback in an email survey, or hand out a paper survey in your store at checkout. Don’t just find out what bothers your loyal customers; take action. Make changes to remove any pain points that feedback exposes.
- Focus on customer service
Customer service can make or break sales. Sixty-six percent of B2B customers and 52 percent of B2C customers stopped buying from a company after a bad customer service interaction. Take customer service seriously. Train employees to work with customers, create a generous return policy, remove any hassles in the checkout process and make sure the overall shopping experience is pleasant.
- Engage your customers online
Seventy-four percent of all internet users are on social media sites. As a business owner, you should go where your customers are. Make sure your social sites are updated daily, respond to comments in a timely fashion and include your fans in regular posts. Northeast Ohio Medical University, for example, highlights a graduate each week on its Facebook page.
- Reward your customers
Tell your customers just how much you appreciate them. Text your loyal customers a special VIP promotion, or host a customer appreciation event at your store. You can offer a few deals on hot items, give customers additional loyalty points, put out some food or invite a DJ to make your event worthy of water cooler talk the next day.
- Give customers an upgrade
Surprise your customers with something they’re not expecting: an upgrade. If you offer a service, upgrade it for free so a customer can experience your premium product. Use your loyalty program to upgrade their status for a month to a level that offers more perks. Let customers try out a new product or app for free. It’s a win-win. Customers feel special, and you’ll likely increase sales.
How do you plan to increase the lifetime value of your customers? Share you plans with us in the comment section below.
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