SCORE Minnesota

Increase Lifetime Value Of Customers!

June 11, 2010

Last weekend, I was inspired to write this article by a feature I saw on the CBS Sunday Morning television show. The feature was an interview with Tony Hsieh, CEO of Zappos, an e-commerce company based in Henderson Nevada that sells shoes, handbags, clothing, eyewear, and accessories. Tony’s newly released book is titled, Delivering Happiness: A Path To Profits, Passion, and Purpose. In his book, Tony describes how he was able to make his 1999 start up so successful that Amazon ended up purchasing it for $1.2 Billion. 

One key to Tony’s success is his belief in promoting customer AND employee happiness. To keep employees happy, Zappos pays 100% of the cost of their employees’ health insurance. They also provide meals for their employees. This approach apparently is working because Zappos tested employee loyalty by offering employees up to $3000 to quit and they didn’t.

These days, many employers are not as concerned about retaining employees as they are about retaining customers. When customers can easily find and purchase similar merchandise online with a few clicks of the mouse, lifetime loyalty seems unrealistic. Remember, your toughest competitors are out to steal your best customers.

In contrast to most customer service policies requiring employees to resolve customer issues within a couple of minutes, Zappos employees can talk to customers as long as it takes to make them happy. The longest reported customer service call lasted 5 hours and 57 minutes. Obviously, Zappos feels it is in their best interest to satisfy their customers no matter how much time it takes.      

According to Wikipedia the terms, customer lifetime value and “customer life cycle management” represent the lifetime value of a company’s customers. Anyone who has been in business knows that it is far more difficult (and costly) to find and sell to new customers than it is to existing customers. The key to retaining customers is something small business owners do pretty well: building customer relationships. Having good relationships with your customers motivates them to want to do business with you and your company, not the competition.

If you can build a big enough base of loyal customers, your business will be more successful in the long run. If you can sell to folks who already understand and appreciate the value of your products, you will achieve greater efficiency, predictability and profitability.

You can spend like a drunken sailor to attract new customers, but if they don’t stick around, your days could be numbered. The following tips can help you increase the lifetime value of your customers.

Tip number one: when a customer leaves, you should pay close attention. You need to become a detective and discover why it happened. Then, you need to fix the problem as soon as possible. The main reason you want to do this is to make sure you don’t lose anymore customers. Also, if you can turn an unhappy customer into a happy one, you have an opportunity to create a loyal customer for life.

Tip number two: capitalize on the simple art of relationships. For example, do you thank your customers for their business? Have you ever tried going beyond a letter, survey, or phone call to send a thank you note or a letter? If you make it personal and sincere, they will remember it. The more impersonal our communications have become as a result of technologies like email, text messaging and tweeting, the more it will mean to your customers when you communicate personally.

Tip number three: create value for your customers. No doubt, your customers have many needs that you are not currently serving. If you ask your customers what else you could be doing for them they will tell you. Then, you have the choice to meet their need yourself or find a strategic partner who can.

Tip number four: make it easy for your customers to do business with you. Evaluate each experience your customer has with your company including phone calls, Web visits, sales calls, your store, or your office to see if it is as convenient and pleasant as it can be.

Tip number five: offer incentives. Of course, you don’t want to bank you company’s future on buying customer loyalty, but you can sweeten the pot. By offering special perks, discounts or freebies, you can make it easier for customers to stay loyal.

If you want to learn more about how to start, operate and grow a successful business contact SCORE by clicking the link on the right to the office nearest you or click here to request free face to face counseling.

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Susan Fronk, St. Paul SCORE
View more posts by Susan Fronk

Filed under: Accounting,Customer Service

Tags: customer life cycle management, customer lifetime value, customer relationships, Customer Service, customer service policies, Lifetime value of customers, retaining customers