What is a Customer Worth?

NormanI’ve got a story to tell you about knowing the value of a customer.

My daughter Shannon got interested in dog food when she was having a little trouble with the hound she owns, Norman. Norman is a little finicky in his eating and tended to be underweight. this isn’t a terrible thing, compared to the opposite, but Shannon wondered if she could find a tastier food that was also good for him. So she delved into the internet and soon had it narrowed down to two choices, a dog food by Blue Buffalo and one by Acana. Shannon is never shy when she wants to find something out so she wound up phoning both companies and talking to customer service reps at each.

The Blue Buffalo rep was nice enough, and wouldn’t say anything about Acana dog food but essentially repeated the information that Shannon had already found by doing her own internet research.

The Acana rep asked questions, informed Shannon that some dogs could develop health issues from eating the same food all the time. She explained that Acana had developed foods that were basically the same except for getting the protein from different sources. That is, all the stabilizing ingredients, and the fiber were the same, but the protein in one was from fish, the protein in the other was beef etc.  So you could more easily switch from one to the other and rotate your dogs food source this way. Shannon wondered aloud whether Norman might prefer one over the other, so the rep said, “Why don’t I send you some samples and you can see for yourself?” Shannon thanked the rep and hung up the phone satisfied. She was looking forward to trying the samples in the mnext week or so.

Turns out, Acana FedExed the samples overnight and Shannon got the four 24 oz. packages the next day. Included in the package of samples was a note from the customer service rep hoping that Norman would like these and looking forward to having him as an “Acana dog” in the near future.

Well, guess who just won a customer for life?

So, how much do you think it cost to overnight a package weighing six pounds from Alberta to Buckhorn, Ontario? I don’t have a clue, but say $50.00. That sales rep is one smart lady. A 28 pound bag of Acana dog food will cost somewhere around $65.00. Norman will go through about one bag every three months. That is $260.00 a year, or close to $2,600.00 over his life. I’m not sure what profit the company makes on a bag of dog food, but it is probably 25% of retail. So the Acana sales rep spent $50.00 to secure a $800.00 profit for her company. Plus, Shannon is telling everyone who wants to listen how great Acana is as a company. And all her friends and family knows how thoroughly she researches something, so if Shannon thinks Acana is a pretty good company, then it probably is. Very hard to measure that kind of good will, but you can imagine that it is pretty large.

So do you know what the lifetime value of a customer is to your business in Trent Hills, or Cobourg, or Peterborough? How much is a sale, on average? How many sales per year? How many years does your average customer stay with you before moving away or going to someone else? Even if you have to estimate some of these numbers, you need to go through this exercise. How else are you going to know what your marketing budget should be? Or whether or not your current marketing makes any sense?

 

I hope you find this article useful.

Paul Stevens

Bootstrap Local Marketing



This entry was posted on April 4, 2013 and is filed under Marketing Strategy. Written by: . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.