People ask me why I’m such a fan of CRM (customer relationship management).
Simple. A properly executed CRM strategy leads to repeat business. And, repeat business is more profitable than new business.
Selling to existing customers is easier and cheaper than trying to acquire new customers.
What helps me focus my mind and efforts on making sure my CRM is up to scratch is a concept called lifetime value.
I try and figure out how much each customer is worth to my organisation over his/her lifetime.
So, how do you calculate the lifetime value of your customer?
- Find your top 20 customers in terms of yearly revenue
- Find out how long on average they stay with your company
- Take their yearly revenue and multiply it by how long they stay with your company
So, let’s say that your top 20 customer spends an average of R100 000 with your company over a year and they stay with your company for 10 years.
R100 000 x 10 = R1 000 000. That’s R20-million (20 customers) over 10 years.
That’s a chunk of change.
Besides knowing your number, why is it important to know the lifetime value of your customer?
In a word: ATTITUDE
Knowing the lifetime value of your customer changes one’s attitude:
- All customers are not equal. So, most of us would treat a R1-million customer a lot better than we would treat a R100 000 customer. It’s human nature – our attention goes where the big money is. So, if we realise a customer is worth a lot more than we thought, our attitude shifts
- We start paying attention to our customers and listen to their needs
- We start treating them better (like gold)
- We service them better
This is where a great CRM philosophy, strategy and action plan comes into its own.
Because we know what the company is worth we really work on building great, long-term relationships.
Take a leaf out of Internet clothing company Zappos’s book when they say that they are a customer service company that happens to sell shoes.
Make customer service and nurturing relationships a total philosophy and not just an footnote in your marketing plan and you will see an increase in long-term customers, repeat business and of course, profits.