Business Growth Series: Increasing Customer Lifetime Value
In our last Business Growth article we explored some ways your business can find new customers. In this article, we’ve put together some strategies you can employ to increase sales by nurturing your existing customer base.
Many businesses focus their time and budget on attracting new business. While new business is important for growth, for a fraction of the cost you can get further sales or referrals from the customers you already have. After all, your existing customers know you and trust you and are the most likely people to buy from you again.
There are two key strategies your business can use to increase your customer’s lifetime value:
- Increase the amount that customers spend with you
- Retain your customers for longer
Keep this in mind when you plan your next marketing budget. It might make sense to shift some of your marketing investment into retention initiatives and away from acquisition. Any steps you take to improve the customer experience will have a positive effect on customer lifetime value. Here are some tactics to get you started:
Checking in regularly through phone calls, regular meetings, and even via social media, will keep your business top of mind. It will also give you an opportunity to develop the relationship further which leads to loyalty and advocacy. Your biggest fans will recommend you to friends, family and associates and can become an ongoing source of new business.
If you don’t already, consider sending a regular newsletter to clients and customers. While a newsletter doesn’t take the place of personal interaction, it’s an easy way to educate your customers about the services or products you offer, as well as industry developments that they may have an interest in. Keep in mind that an effective newsletter has a purpose. It should always be focused on the interests of your customers and convey information of value.
2. Improve the customer experience
Buyers will often leave a brand because of a poor customer service experience. Every individual in your business who interacts with customers should be a customer service expert. Take a proactive approach to training and guiding your team to ensure their standards for service are exceptional.
3. Cross-sell and up-sell
One of the most effective ways of instantly improving the size and profitability of a sale is to offer extra value when your customers are at their most receptive.
Hairdressers are the masters of the add-on sale. Think about how many times you have been asked the question, "Now, what hair products are you using at home?” or “Would you like a conditioning treatment while you’re here today?” It’s a classic example of a cross-sell but the same approach works for almost any business. A lawyer may ask their client if their will is up-to-date, a mechanic might offer a wheel alignment with a car service, or a retailer might present a selection of ties to go with your new business shirts.
4. Packaging products or services
Bundling several products together in a package deal is a way to make your products and services appear more attractive and create extra value for the customer. Essentially you are offering bundles of products that cost less than if they were purchased individually.
Service providers are also able to bundle. A personal trainer may sell blocks of ten half-hour appointments which yields a higher average sale and also guarantees repeat business.
5. Loyalty programs
If you’re looking for a way to get customers to return more often and spend more when they do, then consider offering a reward program that pays them back for their loyalty. You can be as creative as you like with what you think will entice customers to enter into a long-term relationship. Examples of loyalty programs include:
- rewarding customers with free or discounted products or services once they've purchased a certain amount from you
- giving benefits to customers if they join a VIP program
- sending out discount codes or coupons to your existing customers to entice them to do business with you again
- providing customers with added incentives whenever they purchase from you such as a donation to a charity for each purchase
- rewarding customers when they refer new customers to your business
Increasing customer lifetime value is dependent on your ability to develop both long-term strategies and short-term tactics to implement those strategies. Remember, few businesses invest enough in customer retention. Which means your competitors probably aren’t investing adequately in retention tactics either and that may give you another way to get ahead of the competition.
The impact of increasing sales on cash flow
It may seem logical that selling more products or services will improve cash flow, however, increasing sales may actually lead to cash flow problems. This is because sales require a cash outlay. You need to pay for the materials, buy the products or pay for the labour to deliver your product long before you receive any payment. For service-based businesses, an increase in sales will mean increasing the number of hours required to complete the additional work.
While increasing revenue is critical to the growth of a business, to avoid a cash flow crisis it’s equally important to have a thorough understanding of what the increase in sales will cost you to supply and to fund. For further resources on managing cash and sales in your business read about the 7 key financial drivers of cash flow and calculating your break-even point.
Need further help?
Marsh & Partners advisors are passionate about supporting business owners to take control and achieve success. We can provide tailored advice on a range of business topics including business planning, cash flow, growth and innovation. Contact us on (07) 3023 4800 or email us to find out how we can help.
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