Monday, January 10, 2011

What's a Lifetime Customer Worth?

Next time you’re thinking about the worth of a customer, consider a business like Sueann Blackwell’s automotive restyling shop in Merrillville, Indiana. At Merrillville Restyling, most customers are serial car owners. They don’t just trick out one set of wheels and live with it; they buy, sell, trade, and do it all over again and again. Do the math on the customer who gets a different car every couple of years. If the shop’s average job is $1,500 and the customer stays with them for twenty years, he’ll bring ten jobs—or $15,000—through the door. If the gross margin (before overhead expenses) is 40%, the shop owner will put $6,000 in the bank.

Plug in your company’s numbers and think about that the next time you’re tempted to brush off a newbie.

One temptation to resist is the urge to make the customers’ decisions for them. It’s easy to limit the number of options you show them in the interests of time or from the mistaken belief that you’re clarifying the issues for them. The problem, of course, is that later they may discover that you’ve done so and misunderstand your motivations. It’s fine to guide them in their decision-making, but don’t give them any reason to think you’ve shortchanged them.

Another thing to keep in mind with newbies is that praise goes a long way toward making them feel good about their decisions. Think about Little League for a minute. Which coach got the most out of his team, the one who screamed at you about errors or the one who applauded when you did something right? The same is true for a new customer. As they make each incremental decision that goes into drawing up the specs for their order, confirm each decision as a good one. They’ll feel better about themselves—and about doing business with you.

That’s the goal, of course, to make the neophyte customer so comfortable with your business that he’ll come back the next time he has an itch that needs to be scratched. Keep in mind that the second job will be easier to explain than the first one and the third one will be easier than the second, and so on. That makes the time and patience you spend on the newbie customer an investment, not an expense.

Dave Donelson, author of The Dynamic Manager's Guides a series of for and

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