How Much Are Your Customers Worth?

As marketers, we have heard about it for years:  It is important to understand the total value of your customers over the “lifetime” of their relationship with your brand, product or service.  Makes sense, right?  Why would you not want to understand the total impact a loyal customer can have on your acquisition and retention efforts based on this calculation?  However, a great number of marketers we speak to still overlook future revenue opportunities by not recognizing the true lifetime value of current customers.

Even though quite a number of companies can recognize differences among customers’ loyalty over a lifetime, they are often unable to quantify or act on those differences.

The Challenge

It’s not always that easy to come up with this “Lifetime Value,” even as a point-in-time metric. Even for those organizations that have gone down this path to quantify what a customer means to them over time, there are many variables (organizational stakeholders, limitations of existing marketing technologies, incomplete customer data, etc.) that can stand in the way. And, if you can work these issues out, attempting to dynamically integrate this information into your ongoing,changing marketing and campaign planning processes can be a daunting task.

Fact is, customers change, products evolve, companies reorganize and change priorities…things never stand still. However, it’s vitally important to get a handle on the true value of your customers, in order to best drive loyalty, retention and impact your business.

The Breakthrough

Our approach to this problem is to leverage customer and marketing information using analytics to come up with what we call the “Loyalty Metric,” a measurement that allows clients to make business decisions based on a real and accurate lifetime views of the customer, not just a 12-month or even 60-month snapshot. This Loyalty Metric can yield critical and valuable insights, such as:

• True value of your current customer portfolio (they can be worth millions, even billions of dollars over a lifetime!);
• Which customers make the most impact (often the top 10% of your customers contribute 80-90% of total value to your organization);
• Differences between your highest-value customers and lowest-value customers (they may actually look alike in many ways and share similar characteristics, but one critical characteristic can differentiate them, such as purchase velocity).

How to Unlock the Potential of This Information SIGMA has discovered a number of ways to implement and utilize The Loyalty Metric with our clients:

• The development of retention programs for high-value customers;
• Taking cost-effective, pre-emptive action against potential defectors;
• Creating intelligent marketing programs to effectively manage both high-value and low-value customers;
• Generating additional sales at higher velocity among medium-value customers, turning them into high-value customers.

Your organization can apply the same methodologies to increase sales, improve customer retention rates and drive positive business results. Through the right mix of customer lifecycle strategies, marketing analytics and relevant 1:1 communications, you can tap into the potential of your customer relationships.

Image Credits:

http://www.freedigitalphotos.net/images/view_photog.php?photogid=659

About the Author:

Bill Harris is a Practice Leader in the Healthcare and Consumer Markets for marketing analytics firm SIGMA Marketing Group.  Connect with Bill on , or follow him on .

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Tagged as: Bill Harriss, brand loyalty, customer retention, relationship marketing