Issue link: https://read.dmtmag.com/i/370270
SEPTEMBER 2014 24 THE JOURNAL Calculating Customer Lifetime Value BY SCOTT STROUD MARKETING CONSULTANT There are only four ways to grow a business: 1. Get new customers; 2. Get customers to buy from you more often; 3. Get more customers to spend more money when they buy; 4. Get old customers to buy again. While we spend so much time generating new leads, the fact is that it costs 5-8 times less to gen- erate revenue from an existing customer than to find a new one. All your marketing and acquisi- tion costs were absorbed in the first sale, so with every subsequent sale your profit margin increases. You've already invested heavily to convert the customer, why not find additional ways to service him and keep him coming back? Apartment developers and land lease commu- nities understand this concept. Keeping residents happy and in place is a community's #1 focus. But most retailers, in my experience, don't think in terms or repeat business. After all, selling a home isn't like selling a loaf of bread; the customer won't be back for another one next week. How- ever, there are other ways to keep servicing ex- isting customers, such as maintenance agreements, annual inspections, seasonal service, etc. For example, according to a recent study, drivers are no longer trading in their new cars every 2-3 years. Rather, the average new car will stay in the buyer's driveway for 11.4 years. That's longer than people used to remain in their homes! That's bad news for automobile manu- factures, but just fine for the car dealerships. Many are shocked to learn that an automobile dealership makes only a small percentage of their overall profits on new car sales. It's true; the biggest profit points are the service department and the parts department. To the auto dealer, the new car purchase is merely the opening transac- tion in a long-term series of upsells and resells. So, taking a page from the auto dealer's hand- book, what can you offer your customers to keep them coming back on a regular basis? The more value you can offer your customers, the greater the lifetime value will be to you – and to your bottom line. Use the simple calculator below to help you get started: Upsells Add Value and Profits As previously stated, the first transaction should be viewed as the opening transaction, the beginning of a long and mutually beneficial rela- tionship. In fact, the upsell should begin as soon as the first transaction commences. Take Amazon as an example. Pick an item – any item – and go the product page. What do you see? As expected, there are the details of the product, the price and a big 'Add To Cart' but- ton. But look down toward the bottom of the page. The upsell has already begun! But the way Amazon does it makes perfect sense. If you buy a generator, for example, you're likely to need a heavy-duty extension cord, a cover to protect it, a handle and wheel kit to move it, etc. They know that the easiest time for them to sell you is when you've got your credit card in your hand and are committed to making the purchase. And, shoppers who take advan- tage of the upsells not only spend more, they are happier, more satisfied customers. They aren't thinking about what the wheel kit cost; they're thinking how easy it is to move the generator any- where they want without hurting their back! So, what is your next transaction, your upsell? Chances are you already know the items your cus- tomers are purchasing within the first few months of moving into their new home. But if not, do this: Picture your customer having just moved into their new home. See them with their family in the home, going about their daily activities. Picture them outside, looking at the lawn and landscap- ing, walking around the house. What are they doing? What do they need? How can you help them make their new home more comfortable, more like home? Like my friend mentioned earlier, perhaps pools or basement finishes are popular. Or maybe land- scaping packages are in demand. Before the home is delivered, do you offer upgraded HVAC, insu- lation or window packages? Is there an extended warranty that can protect their investment and offer greater peace of mind? Remember, if an item or service adds real value to their home or lifestyle, then you're offering an appreciated serv- ice by helping them get it. Scott Stroud is a Business Development Manager for Power Marketing & Advertising, a full-service mar- keting firm focusing on housing companies and com- munities. Scott is a Certified Marketing Automation Specialist with over 30 years of exceptional results in marketing factory built homes, and can be reached at scott@Power-marketing.com or at 240-420-6343. Lifetime Value Calculation Segment 1 Segment 3 Segment 2 Average revenue per job Average # jobs per year Average # years as customer Total Lifetime Value/customer x x x x x x x x x = = = T J