How Many Customers Would You Like With That?

How much should you be paying to convince a customer to buy?

The advertising in the local newspapers, the business cards, the brochures, the signage on the front of the building, the signage on the vehicles, the give-aways, the promotions, all provide a professional image that attracts enquiring customers.

Business Owners put a lot of effort and money into attracting enquiries only to have most enquiries slip out of their hands like a slippery fish.

Customers have a choice, they can deal with you or go next door and deal with your competitor! So it is important that when your marketing pays off and that customer rings or walks through the door, that you convert them to a life-long customer.

The lifetime value of your customer is the total profit generated over the lifetime of his or her patronage to your business.

Say an average customer generates an average profit of $75 on the first sale, then repurchases on average 3 times in 12 months with an average repurchase profit of $150. And the average patronage life span is 2 years, then your average lifetime client value is $975.

You could theoretically afford to spend up to $975 to bring in a new customer and break even. And that's not including the referrals they may provide in those 2 years.

Business is about creating relationships with people. Most businesses make the fatal mistake of making it far too hard for customers to start a relationship with them. They make it too hard to get potential customers to start trusting them and start using their products or services.

If you take away those hurdles and objections to use your product or service far more people will develop a relationship with you.

If you provide great value, service and results these customers will continue to deal with you. They would have no reason to go anywhere else. The fact that you had faith in your product or service and absorbed the perceived risk will be remembered by the customer resulting in loyalty and a customer that will talk about your great service.

It is therefore very important to develop those relationships very quickly and nurture them so these customers turn into life long clients.

Most businesses fear that the customer will come in once and never again, so they try and maximise their profits on the first sale.

This is a fatal mistake because it is 6 times more expensive to sell to a new customer than to an existing customer. Your existing customer has experienced your service, trusts you and has been through your system. If they are happy they will even recommend you!

Many businesses increase their profits and client base by shifting their focus from making a profit on the first sale to making an ongoing profit from repeat purchases over the life of the customer.

I heard of a Refrigeration Mechanic that installs heating and cooling systems in houses and offices. Now once someone has bought a heating and cooling system there is usually no need to buy another one for many years to come, unless they move.

But what he does is sends out a 6 monthly mail out offering a $19.95 service to the unit, which is usually a $49.95 charge. He offers it to his existing customers and also advertises to the market.

Now every service he completes he is actually losing $30 but by testing and measuring, his results show that 49% of people responding to the $19.95 service requested him to complete additional work resulting in an average of $124.00 of profit.

Even though he loses $30 on the initial service, in 49% of cases he makes an average of $124.00 profit. Net result is a great profit and new life-long customers in his system.

Copyright 2006 Ian McConnell

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