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Do you know how much a customer is worth to you? If you don’t you should. It results in one of the biggest breakthroughs my clients have.
Once you know what an average customer is worth, one of the first things you’ll notice is that there is likely more than one type of customer coming to you.
We reviewed the average value of a customer for one of my clients, discovered that there were at least 3 different types of customers, each buying a significantly different average amount, some were buying only one time, and others were becoming repeat customers. Now we could clearly define who these people were, how to find them, and decided that some were not worth our time, others were our ideal target.
One of my customers, a construction franchise, had only done $60K of business his first year. It went to $500K the next just by finding the right customer based on customer worth.
When we started looking at what his customers were worth to him, the first figure was $1,500, an average of all customers. Then we saw that there were groups of different customers, some buying less than $1,000, some buying $1,000-$3,000 and some buying well over $3,000.
The ones buying under $1,000 were the hardest to deal with and had the lowest profit margin. The ones over $3,000 were coming back over and over, had the best profit margin, and referring lots of other customers. Their total lifetime worth was approaching $10,000.
This company had defined their customers acco
rding to the national franchisor’s suggestion, targeting a homeowner with total family income averaging $50,000. But the customers buying the most from them lived in a neighborhood where the average income was over $75,000. So, I suggested that they send their next mail only to those targets.
Another thing we saw was that the people buying less than $1,000 were the $50,000 average income neighborhoods. The $3,000 customers were from $75,000 neighborhoods, and the higher the income the more they bought, the more they came back, and they made more referrals.
They stopped mailing low income zip codes; these also had a very low response to their previous mail. They started targeting only higher income zip codes, and only to the $75,000 and up families.
The result: the immediate response was a 9 times increase in revenue on the very next mailing. The mail response rate went up 4.5 times, so they had 4.5 times more leads for the same dollars spent only a week before. And, those customers were buying more than twice as much. The total was 9 times more sales in just a week for a small change.
I’ve seen this happen over and over as a company starts to define how much a customer is worth to them.
So, define your average customer worth. Then track the actual results and see if there isn’t something you might learn from being able to segment your customers by their worth to you, total dollars on one purchase, total lifetime dollars, number of purchases, etc.
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