Too many companies fail to focus on growing customer lifetime value

Growing customer lifetime value is all about getting more customers to cost effectively:

  • spend more with you
  • more often
  • for longer

Here are 5 tips for companies (big and small) to grow customer lifetime value:

1) Identify and monitor your high value customers
Not all customers are equal. In most markets, 1% of customers are worth about 30% of total margin. If that percentage doesn’t make you go wow, then read it again!

Despite this, around 58% of corporates do not have any special development plans for this crucial high value segment. Based on my experience, I suspect that fewer than 5% of small and mid sized companies have identified and developed plans for high value customers.

2) Identify why people become customers
The sales staff in 90% of companies couldn’t explain why people buy from them! If you know why people buy from you (especially high value customers) you have a better chance of getting more of them to buy from you by clearly communicating your strengths in your marketing.

3) Identify the cost to serve at an individual level
Measuring averages e.g. the average acquisition cost or the average sales revenue or the average cost to serve can be unhelpful and even misleading. If I have my left foot in 40° water and my right foot in ice, on average, I would be comfortable.

Less than 10% of corporates measure the cost to serve at an individual level. Two customers may both spend £1,000 a year with you: however, one may cost £100 to serve and the other may cost £1,100 to serve. Which customer would you most want to keep?

4) Identify why people become ex-customers
75% of corporates have no idea why high value customers stop buying. If you find out why customers leave, you have a chance of doing something about it. Is it pricing, service or quality? Is there a new cool competitor or have their circumstances changed e.g. people don’t buy nappies for ever!

5) Implement win back campaigns
Less than 5% of corporates have regular ‘win back’ programmes. Win back campaigns are usually very profitable. Perhaps the grass isn’t as green as they thought when they switched to your competitor and just need a prod to some back.

Take a look at the related content on the right to find other articles on growing customer lifetime value or click the tag cloud on the left.

Sources: Institute of Direct Marketing & The Customer Management Scorecard – State of the Nation