Making Sense of Customer Value

Your business could be worth much more than you think!

What is the true value of a customer? How would you ascertain this? If you know the true value of your customer, you get a better sense of how much money you can afford to invest in customer acquisition activities.

The true value of the customer is the total lifetime purchase of that customer and more! The "total lifetime" value of a customer is the average purchase value of that customer, multiplied by the average number of times that customer buys in a year multiplied by the average number of years they remain a customer PLUS the value of referral business that customer generates for your business.

Let's revisit my weekend Café where my cycling buddies and I stop for a coffee every Saturday and Sunday (actually a different one each day due to the location we ride to!). The Café owner may consider the $3 I spend on a cup of coffee as "small-fry". But that is actually far from the truth!

Let's say for arguments sake that his profit margin on that cup of coffee is $2. Now, I try to cycle each week, even in bad weather (yes I know I'm an obsessed cyclist!). So, that makes roughly 50 cups of coffee per year or $100 in profit. If I keep this up and visit the same Café (if they keep me happy, I will!) for say 5 years, then my business is now worth $500 in profit to the Café owner. Still "small-fry" in the overall scheme of things...................., maybe?

Now, I don't cycle alone! In fact, our group varies from 6 (on the rainy days) to 25 - let's take an average of 15 over the year. Now "my" business is worth $500 x 15, or $7500 in profit to the Café owner - not to be laughed at now. And that doesn't take into account our "Cyclist's Christmas in July" dinner that we had there with partners (some 40 people all up with an average spend of about $100 - say $50 per head profit to be conservative). So, now "my" business is worth $7500 plus $2000 x 5 years, or $17,500 in profit to the Café owner! Hey, I'm starting to feel mighty important!

But wait.........

There's more! Because I really like this Café, and they always treat me well, I love to tell other people about it and suggest they try it out. If only two other people, directly as a result of my telling them about this wonderful Café, visit, then that is additional business that I have brought to the Café and increases my value as a customer.

Now, the BIG question - would it hurt the business owner to occasionally provide a cup of coffee for "free" (even to the whole group), or a few bottles of wine complements of the house at our dinner? On a cost basis, that might be an investment of $15 occasionally (coffee) or $30 (wine). Isn't that investment well spent, to secure a customer worth at least $17,500?

So, what is the true value of your customers?

Customer Delight vs Customer Disgust

What is the difference between customer delight and customer disgust? Very little! But, the impact of the difference is huge! Whilst that may be bad news to some, the good news is that to delight the customer takes very little effort. It just takes the right attitude!

Let me explain by describing two recent experiences I had.

On my weekend bike ride with a bunch of friends we always stop off for a coffee mid-ride. On one of these occasions at the Café we'd stopped in, we had been waiting over 40 minutes for just a simple coffee! When we enquired as to what was happening, we were told it would be another 15 minutes by one of the wait-staff! Having already waited what seemed like an unreasonable time for our coffee, we requested a refund. The Café owner was behind the counter and did not even acknowledge us, let alone offer an apology! We took our refund and headed off on the rest of our ride never to return to this Café!

On another ride, we stopped at a different Café. There, while our coffee was being made, we received a complimentary plate of warm raisin toast from the Café owner, some fresh bottled water and then had our coffees served in under 5 minutes! The Café owner chatted with us and enquired about our ride. For those of you near Geelong and the Surf Coast in Victoria, Australia, that Café is the Rhino - well worth a visit! We get a similar reception at Annie's Providore in Barwon Heads.

Can you see the subtle difference between providing your customer with a disgusting and a delightful experience? And how little cost and effort is required to achieve customer delight? Now guess which Café is our regular coffee stop each weekend? Yes, no prizes for that, although if you worked out that it is the Rhino on Saturday and Annie's on Sunday then that is impressive!

It takes just a little effort, but the right attitude to delight the customer and get repeat business!