The Value of One Customer

How often do you consider the value of one customer? How do you value your customers? What do you do to show you value your customers?  If you make a sale for £20,000 to a customer, does that customer have a greater value than one that invests say, £2,000 in your products or services? There is actually more to consider than a one-time sale when you consider the value to you and your company of one customer. Let’s work through a formula that brings to light some other considerations you might want to include.

Work through your own numbers as I go through this example so you have an opportunity to figure out the value of your average customer.

So …. take an average customer – not your #1 customer, the one you derive the biggest investment from each year. Neither a smaller customer that only buys from you intermittently or with a very small investment on a one-time basis. Throw those two types off your list and then average out your customers by adding up their monthly investment and dividing by the number of customers.

Let’s say when you go through that exercise, you find that your average customer spends about £1,000 per month with you. 

Next you need to discover how long your average customer stays with your company. Again, averaging out longevity of a customer is done by adding up the number of years they’ve been customers and dividing by the number of customers. You might find that an average customer stays about 7 years – with many staying only one year and many staying as long as 14 or 15 years. 

Now we can discover what the average investment is over their lifetime as a customer. Take the £1000 average sale per month, times 12 months per year equals £12,000. Multiply the one year by 7 years of average loyalty and you have £84,000.  This is a pretty impressive number but let’s not stop there.

How many times does a good customer like the one who is loyal for 7 years recommend you, your products or service to someone? How often do they advise a buyer to call you or give out your contact information– whether you are aware of it or not? These are passive referrals. Perhaps you are proactive and ask your customers for referrals.

Perhaps you give fantastic customer service and your customers love to tell others about you. Would they refer 1 each year? 2 or 3 new customers to you? Again, your number may be higher. However let’s not blue sky the number of referrals you get as a result of your average customer. Let’s say perhaps once a year, something a customer says or does influences one new customer to do business with you. Over the 7 years, that is seven new customers, again valued at £84,000 each. These referred in customers have a cumulative value now of £588,000 for their seven years as customers. Add that to your original customer and you have over £672,000!

But let’s not stop there. Those new customers will be giving referrals as well. Now that £1,000 per month is turning into millions and is likely the reason for you and your company to be successful well into the future.

Now begin to deduce what these six new customers might bring if they gave referrals or testimonials that influence more new buyers. Our £1,000 per month customer just increased in value to many, many millions. 

Businesses are built on many factors. They are built on the ability of salespeople to hunt new business in their marketplace and add new customers to the register. They are also built (and sustained) through high quality customer service and loyalty resulting from average happy customers who continue to do business with us. Businesses are built in no small part by the referrals given when a customer is happy with the service they receive from our company – and that includes everyone in the company from the salesperson, the customer service people, accounting department, warehouse and shipping – everyone.  They all contribute to the customers’ experience and they all contribute to the longevity of the relationship.

So what are the factors that contribute to the value of a customer?

1)       Longevity – keeping a customer buying from you over a long period of time is key. Every salesperson in every company experiences some attrition – customers who perhaps go out of business or merge with or get bought out by another company and change their buying patterns. These are to be expected and that’s why new business development is critical. Keeping the customers we have is a reflection of the value they believe they receive from us. Constantly treating our long term customers as if we were selling to them for the first time – the same attention, consideration, respect and appreciation is key. Nothing puts a customer off more quickly than being taken for granted. Contrary to popular belief, customers rarely leave because they’ve been attracted by a lower price somewhere. They become vulnerable to our competition because they don’t feel appreciated by us. Remember, when you lose a customer you are not just losing £1,000 per month. What did we say our average customer is worth to us?  In the long run – millions! Most customers rarely complain; they just disappear to our competition without a word when they feel uncared for.

2)      Next factor is Customer Service – customer service today is so much more than fixing customer problems as they arise. It’s much more pro-active than that. Customer service is about understanding the needs of the customer and anticipating future needs before they arise. It’s about opportunity finding the areas that help make the customers’ jobs and lives easier. It’s about knowing your own products and services so well; you can make the connections for customers around their needs. It’s building trust relationships that last for years and years and never taking any customer for granted, even the difficult ones. Delivering industry standard customer service doesn’t cut it with customers any more. They are looking for personal, customised solutions that show an understanding of their special circumstances and the partnership relationship they have with you. Over and above service is the reflection of the true respect and value you know that relationship delivers to both your company and the customer.  You take that relationship for granted at the risk of losing it.

3)      The last factor that contributes to value is Referrals – Customers may give you referrals without being asked, based on the relationship you’ve built with them. However, why count on that. Studies show that some customers prefer not to give referrals, others will give them without being asked but the vast majority of customers are waiting for you to ask. If we don’t ask, we’ll never know which category your customers are in. Getting referrals from customers is a key success factor, so learning to ask for referrals is also key. Many people aren’t comfortable with asking, feeling like it puts undue pressure on customers or it is somehow infringing on the relationship. This is a belief that can be challenged if you have the right methodology in place to ask. Becoming a person who gives referrals first can help this problem. Emerson’s law says what we put out there will come back to us.  Start to be aware of opportunities for your clients. It might sound like this: You know I ran into a guy named Rob Jones at ABC company the other day and it made me think of you. They’re a new construction company in this area. You might want to call Rob to see if your products might be a fit for them. Would you like me to send you his contact information? 

There are ways to ask for referrals without putting pressure on you, or your customers. But even with the right question in our toolbox, we often forget to ask. Constructing a ‘referral tree’ and tracking referrals is a great way to get into the habit. An up-front contract with a customer for the exchange of referrals is a good way to get started as well. It might sound like this: John, I know that you’re trying to build your business just like I’m trying to build mine. Would it make sense for both of us to keep our eyes and ears open for opportunities for each other over the next year and exchange referrals? It would double the reach for both of us. Would you be open to something like that? Naturally, this agreement is only as valuable as the follow through – now you have to be jotting down notes and contact John regularly with your results. Obviously, if it only works one way, it won’t last long. Having a variety of ways to get referrals is essential.

The value of a customer is a combination of how they are treated and how they experience your company – your people, your products and your services. The results of their experience is longevity – how loyal and long they stay and consistently buy from your company. The value of a customer is whether or not they share the good relationship they have with you, with others through referrals. 

Look at the big picture of a customer. Build your daily activities around up-serving your present customers, nurturing those relationships and helping to build each other’s businesses with referrals.  You will watch your effectiveness and efficiency grow.  Good selling and good servicing.