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MY ARTICLES

WHAT IS THE VALUE OF A CUSTOMER?

When analyzing the money that a customer brings to your business, it is important not only to consider the purchase at the time of the analysis, but also the relationship you have with that customer throughout.

Easier said than done. Why? Because you need to understand the life cycle of your customers. To be able to do that analysis, one must have a few years experience as an entrepreneur. You can certainly do "benchmarking" with other companies / professionals to see what they have, but it will not be your cycle. Also, this benchmarking effort is important for comparison purposes.

This technique is essential and as soon as you have the elements to do it, you should get going.

Why is this important? For several reasons, but the most important one is that keeping your customers is much more economical than finding new ones. So in your analysis, if you realize that your customer's life cycle is much shorter than what is happening in your industry, you may have problems to solve:

  • Customer satisfaction may be low. If this is the case, you should look at what level the problem is. It is important to identify the sources of dissatisfaction.
  • You may be selling a product that does not return customers in the loop. They buy a product and then they leave.
  • Your communication tools are deficient. You do not communicate your entire offer effectively.
  • Others...
  • The other point that is very important is the fact that this technique allows you to identify the products and services that are most profitable for your business. For example, a customer who spends $ 5,000 but does not come back is less profitable than a customer who spends $ 1000 in the first year, which grows at a rate of 10% purchase with your company, and that stays faithful for 10 years. If this analysis is not done, your advertising emphasis could be made towards the customer who brings you $ 5,000.

    Less obvious in our analysis is the customer who spends $ 5,000 and does not come back, compared to the customer who spends $ 1,000 every year for five years. The cost to produce is 10% of the amount initially purchased. Both have the same amount in total, but one returns to you WITHOUT ADVERTISING FEES for subsequent years. So the returning customer is more "profitable".

    There are several levels of analysis to this technique, but our focus is for SMEs and professionals. If further levels of analysis are required, you can always use a specialized firm.

    Should you have questions or comments, feel free to contact me.

     

    Stéphane Elmaleh-Riel, B.Ed., MBA
    Marketing consultant