Let's begin by imagining a local "Hair Cut Emporium." Let's
say that the owner's average customer spends about $12.00
per visit. Now, let's pretend the customer revisits the shop
every six weeks. If the average American family lives in
their immediate neighborhood for an average of seven years;
then the value of losing one of his average customers is
about $725.00 over the lifetime of their business
relationship.
Of course, if that's a family we're talking about with
several small children who are also getting haircuts, the
lifetime value of the business just went up to $2200 to
$2300 dollars.
Repeat business from existing, past customers will always be
cheaper and more efficient than soliciting new business from
strangers...and a lost customer is an earthquake.
You cannot view your customers as a single, one-time
transaction. No business can afford to allow a single
customer to stop doing business with you without making an
all-out effort to keep them.
What does it cost to get a new customer? What can you afford
to give them to earn their business the first time and then
what can you afford to give to get them to stay with you?
Could you imagine a restaurant spending advertising budget
to get a customer through the door and then having them only
eat there one time? Of course not, the value of a customer
is in the repeat business. Once they arrive, the main reason
you want to dazzle them with superior service is because you
need valuable word of mouth advertising, which compounds the
value of your original advertising as well as the repeat
business.
Can a restaurant afford to spend as much as $100 in
advertising to get each new customer through your doors for
a $50 meal? The only way that would even begin to make sense
is if you can be statistically certain they will continue to
come back, at least twice a month, for the seven-year
average they will probably live in the neighborhood. The
lifetime value of each customer's business justifies the
higher cost of quality advertising.
The intangible multiple of increasing business through good
word-of-mouth advertising increases the value of a single
customer exponentially.
This is true in retail sales to the public as well as
business-to-business sales applications. I'm willing to
spend a lot more to get a new customer because I've
calculated the lifetime repeat value of their business. This
is only valid when I have customer retention processes in
place.
A basic philosophy in keeping customers for life is to be
able to identify exactly when customers stop doing business
with you. If you can find out why they left, then you can
invent ways to recapture their business immediately before
they establish other loyalties to your competitors.
Recently while watching late night television, I heard the
average American has an immediate circle of influence of
about 250 persons. Truthfully, I don't know where the number
came from, or if it's even valid, but let's pretend for just
a moment that it's an accurate statistic.
Using this factoid folklore math as a basis...an angry
customer has the mathematical potential to become a
nightmare. While we're still in the pretend mode here, let's
also pretend one of your angry customers has told half of
the people they know about a bad experience they had with
your company. Now, let's imagine those people only told half
of the people they know about the bad things they'd heard
about your company. Now, repeating third-hand, embellished
information, those people tell the story to only ten percent
of the people they know.
Congratulations, you've just potentially blown off 406,376
customers. That could equal the population of a small
country...and now, theoretically, they all hate you. One bad
experience has the potential to piss off a lot of people you
never met...and never will because of it.
Of course, that's humorous and exaggerated but it does
hammer home the point. In reality, any amount of bad word of
mouth is devastating, especially since most of the people
who hear it probably live within a couple of miles of where
you do business. One customer badmouthing your company
becomes a viral infection spreading throughout your
community. The reason you go to extremes to satisfy them is
not only to get their business back (I would usually be just
as happy if they never came back) but I want to go overboard
to make them happy, at any cost, to neutralize them...to
shut them up. Great word of mouth won't always necessarily
grow your business but bad word of mouth will always kill
you.
Contact Jim Ziegler at 800.726.0510
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