The Value of the Customer

thirty sixSome people feel that customers are the lifeblood of our businesses.  They even say that the customer may be the most important part of a business.  There are some of us that would argue that their employees are the lifeblood of their business.  For the record, I could argue for both sides.  After all, you need employees of a company to make or do the “stuff” that customers buy.  Without customers, you have no one to sell to. Without customers you don’t make money, you can’t keep people employed, and ultimately don’t have a company. Yes, customers are very valuable. But, let’s take this a step further.

Have you ever thought about the financial value of your customer? Let me give you an example. Let’s say you own a grocery store. The average customer buys $50.00 of groceries each visit, and they visit the store twice a week for 50 weeks each year. In a year, the customer is worth $5,000.00.  Let’s say the average customer moves every seven years, so over a period of seven years, the customer is worth $35,000.00. Wow!

But there is more. You have to believe that if you do a good job, your happy customers are going to refer others to you, such as a new neighbor who just moved into the area. Conservatively, let’s say the average customer refers at least two new customers to you.

These referrals don’t make the existing customer spend more, but they are worth at least $70,000.00 of new business. So, losing one customer can cost you over $100,000.00! ($35,000.00 plus $70,000.00 worth of referrals)

This type of reasoning applies to virtually any type of business. The important point here is to be able to see the big picture.

If you are the grocery store owner and a customer complains about the steak they bought last week, give them their money back. And, don’t stop there. Give them some “free” steak for their next meal. It may cost you $10.00, but that is less than 1/100 of one percent of what the customer is ultimately worth.

Every business has different numbers, but the principle still holds true. There will always be returns, refunds, complaints, etc., and by cheerfully taking care of them you build trust and customer retention.

Even the people/customers whose problems you take care of, yet never do business with again, can be valuable.

A few years ago I conducted public seminars. This seminar was very successful and problems were virtually nonexistent. However, at one seminar, halfway through the first day, a gentleman came up to me and said he didn’t want to attend the rest of the seminar. The program was not what he had thought it would be.

He had spent a lot of money to attend the seminar, and was prepared to fight for his money back. I asked him if we could talk about this during our lunch break and he agreed.

When we met, he gave me his reasons. Whether I agreed with him or not didn’t matter.  I immediately offered to give him his money back. He was shocked. He didn’t think it would be so easy. He used words like honest and ethical to describe our company.

A few weeks later we received a call from a potential customer.  He was referred to us by the man who was unhappy with the seminar! And a few weeks after that he referred another customer.  Our unhappy seminar attendee was sending us business!

Finding the value of a customer is easy. What is the average sale per customer? How often does he/she buy?  How long will a customer buy? Multiply those three together and you have the value of the customer.

(Copyright ©MMXIII, Shep Hyken)


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