When considering our marketing budget, most of us look only at how many new customers we believe we must obtain in order to at least break even. What we fail to do is broaden our view to include how one satisfied customer impacts our bottom-line over a number of years. We focus on the short-term rather than the long-term, broader picture.
By looking at the Lifetime Customer Value of each customer, you may realize that instead of needing six new customers each month to pay for your advertising and marketing budget, you really only need two. Not only does the Lifetime Customer Value equation tell you how much each satisfied customer is worth to your business, it also helps you determine how much you should spend to acquire new customers. Additionally, knowing the value of a single customer may also prompt you to swiftly overhaul your customer service policies to ensure that with every transaction you create loyal customers.
And when you’re delivering a great product and/or service, it’s important to remember the five different revenue opportunities each new client represents. These opportunities are:
initial sale or service – everyday, routine transactions
up-sells – additional services or purchases that are in addition to the routine transactions
repeat business – a customer doing business with you repeatedly over time because they like and trust you
special transactions – significant transactions that are not considered “routine transactions”
word of mouth referrals – new customers who have been referred by a satisfied and loyal existing customer
To calculate the Lifetime Value of your customers you’ll need the following information:
the average transaction fee per customer
the number of times a customer is expected to return to your business each year
the number of years a customer generally continues to do business with you
the number and amount of special transactions per year
how many referrals and the dollar amount of each customer you’ll get from one satisfied customer
Once you have this information, place your own data into the formula calculated below to calculate the Lifetime Customer Value for each of your customers.
When making decisions about your marketing budget and determining how much it costs to acquire new clients versus keeping existing clients, knowing your Lifetime Customer Value is crucial. According to ReachLocal, "having a clear benchmark for your Lifetime Customer Value helps you:
determine how much to spend to get a new customer
focus your marketing budget on the most cost-effective tactics
develop plans to increase repeat business
create programs to reward customer loyalty
offer incentives to drive referrals"
When determining your marketing budget and break-even point, keep in mind all the ways a single customer impacts your bottom-line as well as the lifetime value of each customer.
What are some of the changes you’ll be making to your marketing budget and business now that you know the value of each customer?
We'd like to wish all of our clients only the best this holiday season. If you'd like to see ReachLocal's unique way of spreading the holiday cheer this year and showing our appreciation to all of our clients check out our Wall of Thanks!
Some parting words of wisdom.
"Life is too short to wake up in the morning with regrets so love the people who treat you right, forget about the ones who don't and believe that everything happens for a reason. If you get a chance take it. If it changes your life, let it. Nobody said life would be easy, they just promised it would be worth it."
No longer do consumers have to base the entirety of their decisions from the information given to them by businesses. Now, we easily type in a few key phrases and find real reviews from real people. We can converse directly we the companies who have already adopted social media as their new marketing avenue. And, we can make informed decisions based upon not only what a company tells us, but, more importantly, what we learn from other consumers and from authentic conversations with real people at the company. But with all this newfound technology and capabilities will traditional marketing outlets slowly die off?
Brian Hamlett, President of mPower Consulting believes that the new social media mediums won’t kill off traditional marketing avenues but they can endanger them. Hamlett states “Just like TV did not kill radio and video recorders did not replace TV shows, traditional marketing will not be replaced by the likes of social media marketing . . . unless they do not learn to adapt.”
And if you want to see how these new mediums are already changing the business landscape today - then watch Social Media ROI: Socialnomics (video below)
Ultimately, you have to go where the consumers go. If you are in charge of determining where the marketing budget will be spent take the time to converse directly with your clients and target audience. Discover where they go to for information regarding purchasing and service decisions. If your clients predominantly utilize the Internet for information then go with social media. If, however, they still rely on traditional marketing avenues then utilize those mediums instead. As long as consumers continue to look towards traditional marketing avenues for information and as long as those avenues continue to adapt then traditional marketing is here to stay.
What are your thoughts? Do you think traditional marketing mediums will ever disappear completely? How do you think this shift in mediums has effected the way we market our brands? Will traditional marketing ever be the forefront way to market again?
ReachLocal Orlando's Team Bishop has received yet another raving testimonial. While we're glad to receive this raving reviews, we're happier that we're helping local businesses grow their business through Internet marketing.
Reach Local has greatly exceeded my expectations. In just 6 months, my malpractice case load has increased to the point I am beginning the interviewing process to add an associate lawyer, and paralegal to my staff.
"Our company has worked with Dawn for many years, and I have been so happy with the results that we have gotten. She has provided us with ideas and insights, then worked with us to implement a plan that has brought growth to our business."