Cultivating Long Term, Highly Profitable Customer Relationships
What is the value of a single customer to your business?
Let's talk about a very important business concept: Lifetime Customer Value (LCV).
What exactly is LCV? Quite simply, it's the amount of money you can expect a single customer to spend with you over the entire life of their business relationship with you.
Here’s a quick example: A new client subscribes to your $250/mo financial planning service. If your average client stays with you for five years, then the LCV of this client is $15,000 ($250/mo x 60 months). This is assuming that you don’t raise the monthly subscription fee each year, which of course you would.
Instead of looking at a customer in terms of a single transaction, LCV as a concept forces you to look at each of your clients as a long-term business ally. On a balance sheet, your customer list exists as the single most valuable asset in your entire business. Most small business owners think largely in terms of either their seasonal customer base, or only their most loyal returning customers.
Unfortunately, many business owners do absolutely nothing to foster long-term relationships with their customers, and simply view them as a person that walks through the door on their own whim. There are a number of problems with this thought process. First of all, if you view each customer as just an occasional transaction, then you are obviously caring more about yourself than your customer, and this is just a bad business mentality.
Legendary sales trainer (never forget, you ARE a salesperson, no matter what the initials after your name say) Zig Ziglar is quoted as saying, "You will get all you want in life if you help enough other people get what they want." What Zig is saying here is that if you look out for your clients, they will reward you financially. Second, if you only think about any particular customer in terms of being an occasional transaction, or a client you see once a month, you are missing out on a massive opportunity to be of greater value to your customers. You are in a position to offer money-saving offers to your customers and prospects. If you aren't doing this already, then why not? Do you do mid-year or quarterly reviews for your clients to discover new opportunities relevant to them? Are your monthly subscription box customers buying one-offs of products you offer somewhere else?
Always be thinking about what additional products and services you could offer your customers. This not only makes you more valuable to them and solidifies the long-term customer relationship you build, but also adds to your own bottom line. If your customers are spending money at one business for milk, another business for meat, and another business for fresh vegetables, maybe it’s time for somebody to invent the modern grocery store. That’s where you, as an entrepreneur, can step in to create value for consumers.
Third, if you’re in an industry where the standard is seeing clients, customers, or patients only once or twice per year, such as in tax, accounting, dental, etc., then you need to fix this, because you’re doing it wrong. For example, tax practitioners that see their clients only once a year are at far greater risk of losing clients to competitors, computer software, their new brother-in-law, emerging AI options, etc. It costs a substantial amount of money to obtain a new client, and you should therefore fiercely protect the clients you get.
Metaphor time: Think of your clientele as a flock of sheep, and you're the shepherd. If you lose a sheep from the flock, you lose far more than just a $600 tax return or a $300 teeth cleaning next year. You lose thousands upon thousands of dollars that are represented by the LCV of that client.
There are active means by which you can cultivate these long-term client relationships and maximize LCV. The single biggest key to doing this is maintaining regular communication with your clients throughout the year. Holding seminars and workshops, sending out a monthly newsletter, having in-store customer appreciation events with discounts only for those on the invite list, mailing and emailing out service reminders for equipment, etc., are all ways to keep in touch with clients year round, and introduce them to your additional product and service offerings that not only help them, but also helps you.
Pay attention to these specific things you can do to increase LCV, and prevent customers from going to competitors. These marketing campaigns to your existing customers are the most important marketing campaigns in your business — far more important than doing lead generation campaigns to attract brand new customers.