Subject: The Phenomenon - Understanding Total Customer Value
Articles for Review Only
posted by HPBA on Tuesday, January 15th 2008 @ 7:51 PM
PHENOMENON TRIGGER #4: Understanding Total Customer Value How much is a customer worth to you? This may be the MOST IMPORTANT question that you ever answer in your business.
Your answer will determine how much you can spend on attracting prospects into your herd, nurturing the relationship, converting them into customers, and fulfilling on their purchases. Your answer will determine how much and how fast you can outsource your business process. AND your answer will give you a hint as to how quickly you should be adding products, services to increase your Total Customer Value so that you can spend more and outsource more more quickly. So, you see, an understanding of your customer's Total Value truly gives you the keys to expanding your business, making more money, and experiencing more freedom as an entrepreneur. Isn't that worth getting to the bottom of? What goes into figuring a Total Customer Value? Obviously, it starts with how much a customer spends when they purchase your product or service. And that's where most "non-Phenomenon" businesses leave things. "Good" businesses recognize that the total customer value should include repeat business and additional product purchases. So if the customer has one transaction every 6 months, the total of those transactions adds to Total Customer Value. "Good" businesses look for ways to get the customer to buy more of the company's existing products/services, i.e. repeat business. Exceptional companies look for additional products/services that customers would want to buy and ways to repackage/repurpose existing materials to continue to serve the customers needs. Coupon bundles, special events, exclusive, premium services, "stuff from the vault", specialty programs, communities, continuity programs - - all are examples of additional products/services that can add to a customer's Total Value and the business's bottom line. So that's how exceptional businesses differentiate themselves from good companies when figuring out the Total Customer Value, which in turn, determines all marketing, overhead, and "business liberation" decisions. But there's an additional step that EXTRAORDINARY businesses take when determining the TOTAL VALUE of a new customer and, thus, how much a business could/should spend in acquiring him/her...the value of that customer's word of mouth, exposure, network, relationships, and referrals. Think about it in this way. Typical Realtor - the value of the customer to this realtor is $6,000 (3% of a one time $200,000 transaction) - that means that the realtor can only spend a fraction of that $6,000 to acquire the customer. If 1 out of 100 leads turns into a buyer, the realtor can spend a fraction of $60 per lead to get a customer (because, presumably he/she has other expenses including mortgage, food, car, etc that he/she is counting on that $6,000 for) Now, what if you had additional arrangements with other businesses that marketed to your home owners and the average yearly value to you (on commissions or sponsorship) per customer was $500? Now the TCV (total customer value) goes to $8,500 (5 years time $500 per year). What if you engaged in an innovative program to turn your home clients into investors and 1 out of every five began buying 1 house every other year? (1 transaction - $3,000 every other year - 6 years - $9,000 - divided by 5 (only 1 in five clients do it), $1,600 Now the TCV goes to $10,100. And what if, because of your superior follow up, service, and systems for generating referrals, you were able to get each new customer to generate 1 new referral customer per year? Now, over the span of 5 years, your Total Customer Value skyrockets from $10,100 to $60,600. If every new customer was worth $60,600 to you over the span of 5 years, how would that impact what you could afford to spend on marketing, on follow up, on conversion, and on keeping them happy? When you start to understand how valuable a customer can be to you over the long haul, your whole business changes. When you "know your numbers", (including your Total Customer Value, your referral rate, your conversion rate), you are in a position to spend money wisely to attract, retain, and leverage new customers. Dan will often say that most businesses think that the value of a customer is to make a sale, but smart businesses know that the value of sale is to "get a customer". When you understand Total Customer Value, you will start to expand how much you're willing to spend (or lose) to get a customer. Frazier O'Leary www.BreakthroughBusinessStrategies.com | 
