Understanding Lifetime Value of Customers

An essential aspect of marketing is understanding lifetime value of customers. Owners who take time to develop and maintain strong relationships can take their business to new heights with minimal expense.

One of the greatest benefits of understanding lifetime value of customers is owners can tap into the power of word of mouth advertising. When customers are pleased with products, services, and customer service they are likely to tell everyone they know.

Most people realize that quality products, superior services, and exceptional customer service are rare. Countless companies focus more time on making profits than building relationships. They become so obsessed with the bottom line that they fail to remember that customers help to generate profits.

Today, companies have more relationship-building tools than ever before. They can reach consumers through social media marketing, mobile marketing, and Web marketing. They can produce advertising videos to showcase products and personnel. They can interact with consumers through social media outlets such as Facebook, Twitter, and LinkedIn.

An unfortunate truth is many companies fail to recognize the value of retaining customers for life. They spend a tremendous amount of advertising dollars to get new customers, but put little effort into retaining them.

Loyal customers can save companies a substantial amount in advertising. They already know and love the brand and don't need to be convinced to purchase products. Best of all, they will promote the company through word of mouth referrals and social media outlets.

To fully capitalize on the power of customer loyalty necessitates creating a plan that rewards them. This might include things such as sending out appreciation gifts or establishing a customer loyalty program that offers deep discounts, free shipping or products.

Any time customers receive unexpected gifts and are acknowledged for their loyalty they will tell others. Loyal customers have a tremendous amount of influence when it comes to helping others decide where to spend their money. In essence, these customers become volunteer marketing reps that don't cost the company a dime.

Countless books and articles have been written about how to calculate the value of customer retention. Wikipedia offers a mathematical computation which shows the cost to obtain new customers versus the cost of retaining customers.

In a nutshell it boils down to calculating the average value of a sale multiplied by the number of repeat purchases multiplied by the average duration of customer retention. For illustration purposes, let's say a customer spends $30 per month and has a loyalty retention rate of three years.

The customer would spend $360 annually with a grand total of sales amounting to $1,080 over three years. If the company were to reward them with 10 percent of their sales they would be giving back $36 each year.

Industry experts say it costs 6 to 7 times more to acquire customers than retain them. Using the above illustration, each customer acquisition costs $216 to $252. While acquiring customers is imperative, retaining them is even more important.

At Online Marketing DNA, we specialize in helping business owners get the most from advertising campaigns and reduce costs of customer retention. Our proven system utilizes a diverse mix of strategies to strengthen brand identity and broaden online exposure. Click here to learn more about our services and the benefits they offer.

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Published on November 12, 2013

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