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Chris LoCurto

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March 6, 2012

Marketing To Get New Customers vs. Lifetime Customers

Marketing to new customers can sometimes be frustrating, costly and about as understood as the tax code. Throw in the discussion of new vs. lifetime and it gets more confusing. Do you go after new clients or do you continue to focus on the ones you already have? In Why Burger Up Has Become My New Favorite Burger Place! Joel Fortner added the following comment:

So in MC Hammer fashion, I thought I would break it down to make it easier to understand. (I’m also expecting some expert input from Joel. No pressure Joel!) If you don’t know what your Customer Lifetime Value is (CLV), you don’t know if you should be spending money on new or current customers. Now, if you only have one product, it’s an easy answer. But if you have multiple items, then you need to know exactly what each customer is doing after they have become enticed by your marketing prowess.

So how do you figure out exactly what your CLV is? There is a calculation so simple even Jessica Simpson could get it:

\text{CLV}  = \text{GC} \cdot \sum_{i=0}^n \frac{r^i}{(1+d)^i} - \text{M} \cdot \sum_{i=1}^n \frac{r^{i-1}}{(1+d)^{i-0.5}},

Ok, maybe we can go with a simpler approach to it. Try this:

     Average Annual Spend

x   Length of Average Relationship

=   CLV

In other words:

     $100

x   5 Years_________________

=   $500 CLV of Average Customer

Once you have your CLV, you can then decide if you need to spend more time leading your current customers through your funnel as opposed to only focusing on new customers. You see, you have a market for new customers. There’s no doubt about it. But spending some time and resources on those playing in your courtyard might be just as beneficial. You won’t know, though, until you calculate your CLV. Give it a try.

Question: How do you see this affecting your current marketing plan, even if you work for someone else?

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  • http://specializingintheimpossible.wordpress.com/ Laura Johnson

    I’m just wondering where you got the equation from…

  • http://www.SevenPillarsOfSuccess.Net Louise Thaxton

    Great post, Chris. And it is also so important to have a PLAN of how to reach out to past clients. I set those times and methods ( i.e., e-mail, snail mail, etc.) at the beginning of the year. We want to touch our clients at least 12 times per year with birthday cards, gifts, financial information, holiday greetings.

    It is about putting our name in front of them on a regular basis. Then when someone needs a home loan, I’m the one they think of.

    It is not just about “repeat” business – but business they can REFER to us.

    Once again – great post! And thanks to Joel for his contribution!

  • Geoff Allen

    Another aspect of this: as a customer, nothing annoys me more than being taken for granted. When I pay a higher rate than new customers, and the only way to get a better rate is to threaten to leave, you’re telling me that you aren’t as interested in my business as you are the new guy’s. And I don’t threaten to leave. I just leave.

    • http://www.ChrisLoCurto.com Chris LoCurto

      I’m with ya. I understand initial discounts to get new customers, but if I ask, you should think REALLY HARD before telling me no.

      • Geoff Allen

        Major League Baseball has a nice policy with their MLB.tv service. The renewal price is the same as what you paid initially. So, the retail price goes up every year, but your price is fixed.

        I doubt that policy will scale to a point if/when they saturate the market. But, for now, it rewards the long-term customer.

        • http://www.ChrisLoCurto.com Chris LoCurto

          And keeps you from thinking about canceling. Good stuff.

  • http://uma-maheswaran.blogspot.com/ Uma Maheswaran S

    In one of my previous organizations, I have seen the management going bang on expanding the customer base by acquiring new customers on an agressive basis. While doing do, hey failed to concentrate on retaining the already existing customers. Utilmately, they were never able to achieve their intended growth rate.

  • http://www.lilykreitinger.com/ Lily Kreitinger

    Say what? I will have to change my name to Jessica (and why are we picking on her by the way?)

    Let me see if I can translate this into English:

    If your clients spend oodles on money on your services and products every year and they have long relationships with you (five years or more), you’re better off spending more time-money-energy nurturing and growing those relationships. If on the other hand you run a fast-food joint at a rest stop on Route 66, you’re better off piling your efforts on getting more folks through your revolving doors. Is this right?

    Is there ever a point where the lump sum of your lifetime customers equals the lump sum of your one-time-revolving-door ones because of the high volume of the second group? How do you handle your strategy then?

    • cabinart

      Lily, this is a great clear summary of the points in this post. I think my business qualifies for both descriptions, depending on the type of show or public exposure involved.

      • http://www.bluebridgecomm.com/ Joel Fortner

        For what’s it’s worth, I believe you’re right.

    • http://www.bluebridgecomm.com/ Joel Fortner

      Lily, while we’re awaiting Chris, here’s my take, if I understand your question correctly. If revenue from your repeat customers equals or let’s say surpasses your one-time customers, you’re gonna want to spend more time and effort keeping those lifetime customers because it’s going to be cheaper and less time consuming. It almost always costs more to get new customers than retain. Of course this depends on your business. But this entire discussion is why you want to document the best of your ability who your customers are, what they buy, how you got them, how long it took, etc. This way you can analyze the information for insights and trends.

      • http://www.lilykreitinger.com/ Lily Kreitinger

        OK, that makes sense. Since I don’t have customers who buy anything from me (yet), this is one to keep in my go-to library of EntreLeadership resources. Definitely great information. Thanks Joel!

        • http://www.bluebridgecomm.com/ Joel Fortner

          Good deal!

      • http://www.ChrisLoCurto.com Chris LoCurto

        I can’t think of any products off the top of my head that I only use once in my life. (Keep in mind I’m in the middle of teaching a three day course.) Therefore, I SHOULD be someone’s repeat customer. While Apple spent YEEEEEEARS marketing to get me as a client, they don’t have to do much to keep me. A little hear and there and I buy the next product.

    • http://www.ChrisLoCurto.com Chris LoCurto

      You’re goal is to get there. If you can do more with those who are already sold out for what you do, you win. However, you still need that revolving door to keep adding to the lump sum. The funny thing is you should never be satisfied with one being bigger than the other. If my lump sum is bigger, how do I get more new clients? If my new client list is bigger, how do I convert them to long term?

      • http://www.bluebridgecomm.com/ Joel Fortner

        Great addition, Chris. Excellent way to work that.

      • http://www.epicenterlanguages.com.mx Aaron Nelson

        This is so where I am right now. Having repeat clients is a risky business in that it can trick you into easing off on trying to attract more. Big mistake.

        Thank you very much for this.

        • http://www.ChrisLoCurto.com Chris LoCurto

          My pleasure!

  • http://www.bluebridgecomm.com/ Joel Fortner

    Geez, thanks for the setup Chris! No pressure, indeed! Okay here we go. Yes, every business no doubt has a market for new customers whether you’re offering a product or service. It takes X amount of money and/or X amount of time to acquire new customers. And usually it’s far more than it takes to keep that customer. Once they’re in the door, of course, you have to wow them but the job isn’t over at that point. Now it’s time to keep them coming back.

    Just like businesses should have a deliberate marketing process for bringing in business, they should also have a deliberate marketing process designed for repeat business. Don’t just leave it up to chance! Hope is not a plan! As marketer Dean Anderson says, think of this as your “after unit,” where your marketing to get new customers is your “before unit” and when they’re in the door is the “during unit.” You should have deliberate actions/systems/processes for all 3 units. Doing this WILL improve your business. You think the free coffee/baked goods co-located with the bookstore at Dave Ramsey’s office is just a way of them being nice?!! (For the record, they are arguably the nicest business team you will ever interact with but you get the point.)

    Growing repeat business can be done in so many ways but a key is maintaining communication, continuing to add value, building trust and rapport even more, AND continuing to make offers. You have to lead people to the offer. You can’t forget this even with current customers.

    While every business is unique, all of this can be done through newsletters; exclusive web site content; special customer-only events, such as thank-you socials/dinners; special offers; free advice and information after the transaction; drop-by visits of follow-up phone calls and an infinite number of other ideas.

    The point is be deliberate about this. Don’t leave it up to chance and take customers for granted. If you do, customers you could have kept for life will end up with a competitor for life because they attracted them and had a deliberate process in place for keeping them.

    • http://www.DavidRobertsons.com/about David Robertson

      Great summary Joel. Marketing does not stop after the transaction.

    • http://www.epicenterlanguages.com.mx Aaron Nelson

      WOW. This is fantastic information! I never thought of having a marketing process in place to serve existing customers. I mean I’ve done things for our existing customers, but never on purpose.

      I’m totally saving this post and the great conversation going on here for future reference.

      • http://www.bluebridgecomm.com/ Joel Fortner

        Awesome! I love teaching this stuff so it’s really cool to get feedback that you’re getting something out of it.

    • http://www.SevenPillarsOfSuccess.Net Louise Thaxton

      Joel – you are so right on this – I want all of my clients to be clients for life! And they become my sales network – referring their friends and family to me!

      • http://www.bluebridgecomm.com/ Joel Fortner

        “They become my sales network…”. That’s it and how its done!

  • http://www.DavidRobertsons.com/about David Robertson

    Chris, you’re exactly right.

    Knowing your CLV is extremely important to all your marketing activity. When you know this number, then you know a bunch of things: Who is your ideal customer? How much do you spend in acquiring a customer? How much do you spend communicating beyond the transaction? How important is it to develop loyalty vs. new customers?

    There is a whole lot to be said here, but to keep it short, you cannot create an effective marketing strategy without knowing the monetary value of your customer through the life of their relationship with you. This “secret” number is one of the important keys every marketing activity in you business.

    The best part is… through design, you can increase this value, thus increasing your bottom line.

    • http://www.bluebridgecomm.com/ Joel Fortner

      Great comment, David.

    • http://www.ChrisLoCurto.com Chris LoCurto

      Aaaaaaamen David! Change your focus, change your revenue.

  • http://www.lifeofasteward.com Loren Pinilis

    I work with people who think exactly like Joel. It’s great.
    Their philosophy is to under-promise and over-deliver – and their pricing is definitely fair and not anywhere near aggressive. That keeps people coming back year after year after year. They spend much less time acquiring new customers, which ends up paying way more dividends than if they had aggressively priced things.

    • http://www.bluebridgecomm.com/ Joel Fortner

      Thanks Loren! It’s interesting you perceive that I under-promise. I actually don’t mean to do that. =) Maybe it’s just my nature!

      • http://www.ChrisLoCurto.com Chris LoCurto

        It really needs to be Promise, and Over Deliver doesn’t it? :-)

        • http://www.bluebridgecomm.com/ Joel Fortner

          Yes, which is why Loren’s perception is interesting to me. I’d much rather be very straightforward about what I can deliver and then over deliver.

    • http://www.ChrisLoCurto.com Chris LoCurto

      Which is exactly what you want. I have no doubt that they have received a good number of NEW clients form referrals.

  • http://www.epicenterlanguages.com.mx Aaron Nelson

    Yes! I’m so thankful you provided an alternate formula there. I was totally lost at Jessica Simpson’s equation. (Math is not my friend.)

    This is eye opening. I know for sure that my clients are long term relationships. I’m going on 6 years with the same ones! (Thank you God!! )

    I need to spend more time taking really AMAZING care of my current clients. Thanks for this!

    And if you have any sage advice for bringing in new clients….

    You will have an awesome day today Mr. LoCurto. God bless you!

    • http://www.bluebridgecomm.com/ Joel Fortner

      Aaron, you’re clearly serving your customers well to keep them for 6 years. Awesome! So what’s your small business? I know you directed the question to Chris but I’m happy to take a stab at advice on bringing in new clients, at least conceptually.

      • http://www.epicenterlanguages.com.mx Aaron Nelson

        Hello Joel,
        Thanks for your comment. My business provides English consulting services to corporate clients. I would love to talk with you about bringing in and winning new clients. (And anything else for that matter! ) But for sure, sales development is one of my top priorities these days.

        I think my biggest struggle is building an effective list of prospects and moving them towards making a buying decision.

        My clients are primarily corporations. That means they tend to move slowly, and from what I’ve learned – in Latin America they tend to move even slower. (But the upside is that once you earn their business, they tend to be very loyal.)

        My first two clients took me a year each to win. Right now they are my main clients. We have a few smaller businesses, but the biggest ones, and where we have been trying to work on, has been our corporate clients.

        Just wondering how we could…or even if we could – shorten the sales cycle on some of these guys.

        Thoughts? And thanks for your interest. (I’m already on your site and poking around…very interesting Joel! )

    • http://www.ChrisLoCurto.com Chris LoCurto

      Thanks Aaron!!! I appreciate it!!