Note: If you want to determine your company’s present lifetime value of an average customer you may wish to read my article “Determining the Lifetime Value of Your Customers.”

If you’ve read my article “Determining the Lifetime Value of Your Customers” you know that many companies see the value of a customer as simply the value of all the purchases that customer has made to date. So if Sue has only bought one product worth \$39 they would see Sue as being worth \$39 to them.

Looking at the value of a customer in this manner is quite dangerous in that it really cannot give you any indication of the true lifetime value of your customers, or the average expenditure of a customer with your company over the period of time between their initial and final purchases. Assuming an average customer of yours purchases more than once from your company, this value will be higher than the value of the first sale. Your goal is to make this value as high as possible, of course.

Having a good idea of what the true average lifetime value (LTV) of a customer is essential to knowing how much you are able to spend in acquiring each of your customers. For instance, if your average customer purchased a product worth \$39 ten times from you then their lifetime value would be \$390. Knowing this information, you may in fact be able to spend more than \$39 in acquiring each customer and still make a profit in the long run depending on your Cost of Goods Sold and Operating Expenses.

Another great reason to determine the lifetime value of an average customer for your company is so you can have a quantifiable goal. Once you have a quantified figure you can create goals such as “In quarter three I want to increase my average LTV by 10%.” These type of specific goals have much greater chance of being accomplished than if you were to say, “I want to increase the lifetime value of my customers.”

Essentially, increasing the lifetime value of your customers comes down to three objectives; increasing the length of time a customer buys from you, increasing the amount they spend on each purchase, and decreasing the time between purchases. Working on all three of these at once is what marketing expert Jay Abraham calls “Working on the Geometrics” of your business. This can be very powerful as a 10% improvement in each of these three categories will increase your sales by 34.4%.

 Improving Lifetime Value by Working on the Geometrics of Your Business Original After 10% improvement in each Average Amount Spent on Each Purchase \$100 \$110 Average Time Between Purchases 90 days 81 days Length of Average Customer Relationship 10 years (3650 days) 11 years (4015 days) Total 100 (3650/90) = \$4055.56 110 (4015/81) = \$5452.47 Total % change = [(\$5452.47 – \$4055.56) / 4055.56] x 100 = 34.4%

So here are four steps designed to increase the lifetime value of your customers by working on these three objectives.

Step one: Personalize the Relationship & Build Rapport

Building rapport with customers is a very important thing. Too many businesses are commoditizing their product. You may have a product and feel it is the best in the world – and it may well be. But there are lots of other companies out there and lots of other companies producing nearly the same product. You need to differentiate both your product and your company. You need to build a personal relationship between your customer and a figure in the company, say for example, the owner. You need to develop a relationship and build rapport and trust with the customer for both the company and that person. Personalize the interaction.

Instead of saying, let’s do business with XYZ Corporation, the customer will think, “You know, I’m gonna to do business with Joe. I like Joe. Joe’s been emailing me those great tips every month because I subscribe to his newsletter. I have a good relationship with Joe. He followed up with me and made sure I was doing okay. I talked to Joe on the phone last month, he gave me some great advice. I’m gonna stay with Joe. Just because this other company’s product is a few bucks cheaper, no matter, I know Joe, I trust Joe, I am going to stay with Joe.”

It’s no longer “I’m going stay with XYZ Corporation”. You have succeeded in de-commoditizing your product and and have taken a very positive step towards increasing the lifetime value of your customers.

Now I’ve been saying customers to this point. But in fact you do not want customers. Let me say it again. You do not want customers. What you do want are clients. What you want is to turn your customers into clients. Because once that person is your client they will value the relationship more and stay with your company a lot longer. The lifetime value of that person will be exponentially higher.

Instead of having a commoditized product with customers buying on the basis of price only, you need to have a differentiated product. You need to have a personalized relationship with your customers; and you need to turn these customers into clients by offering them quality advice.

Say you are selling a nutraceutical product that treats arthritis. Instead of saying “buy my product, it is the best” say “buy this product, it will do this and this and this and also be sure to exercise this joint and this joint and you may wish to do this stretch and oh yes I found this stretch to be good as well and you may wish to drink a bit more water and be careful of these foods in your diet.” You want to help the customer and give them good advice. Take their interest to heart at all times and develop rapport with them so they learn to trust you.

Once your customer develops this trust in you, you are well on your way to turning that person into a lifetime client of yours. Do note, however, that trust is crucial. Offering bad advice or advice that benefits you in the short term but hurts your customer will be detrimental to developing this relationship. Always have your customer’s interests at heart and even if this means a short term decrease in your profits it will greatly increase them in the long term.

So how can you follow up with customers, build stronger relationships, and turn your customers into clients? Read on!

Step two: Make Yourself Available and Answer Questions

Eventually, you’ll find that you just do not have enough time to respond to every email and comment individually. When this happens, make sure you have a very, very well trained support person or support team to take over from you. Make sure they are well-read and very knowledgeable on the subject – as much as you are if possible. Then, allow them to answer questions and comments about the product and have them do it in your name. This will continue to build strong relationships from the outset while you are off managing and strategizing.

Step three: Improving Client Communication & Retention with a Monthly Newsletter

If you do not presently have a newsletter you a just plain missing out. You are missing out on a great way to strengthen relationships with your clients, encourage repeat sales, and earn their trust. If you are a serious company hoping to survive, you need a newsletter. If you are a Business-to-Consumer company you must (read: must) have a newsletter. It does not have to be an expensive printed newsletter, however. It can be an electronic newsletter, an ezine.

All you need to do is once monthly, perhaps every other week, send out a newsletter updating your clients on what is going on with your company, and more importantly have some good content. The content must be very high quality and offer an added value to the lives of your subscribers. The last thing your customers need is another piece of junk email.

What can you write about? Well, every product has a benefit. Almost all products will improve health, wealth, sex life, knowledge, productivity, comfort, or happiness. So whatever your product improves, simply write a quality article or two on this topic each month.

Using the example from above, if your product was effective in treating arthritis you could write an article explaining what exactly the disease is, some of the stretches that can be done to treat it, what the most common treatments are, what the side effects of those treatments are, and what changes one should make to their diet, among many other possibilities.

Either write a quality article or two on a related topic or if you do not have the expertise to do this pay someone who does to write the article for you.

Once you have the content completed, send the newsletter out to your subscribers each month. This will greatly increase your repeat sales. I know in a company I used to work with our sales would double, go up 100%, the day we sent the newsletter out. Our product had to be reordered monthly so this monthly newsletter reminded our clients to reorder. Now, if you have a product that must be reordered you are going to want to have an autobill and autoship program, but that is a topic for another article.

Also, be sure to archive the newsletter on your site. This is a great way to build content and increase the breadth of your search engine listings.

As a technical note, to implement the above you will need to have a form on your website that collects the first name and email address of those who wish to subscribe. You can use FormMail, a Perl script that comes with practically every hosting plan to do this very simply. The HTML code for this form will look something like this:

<form method=”post” action=”http://www.yourdomain.com/cgi-bin/FormMail.pl”>
<input type=”hidden” name=”recipient” value=”youremail@yourdomain.com”>
<input type=”hidden” name=”subject” value=”Subject of the email you want”>
<input type=”hidden” name=”required” value=”firstname,email”>
<input type=hidden name=”redirect” value=”http://www.yourdomain.com/thanks.html”>

First Name: <input type=”text” name=”firstname” size=”12″><br>
Email: <input type=”text” name=”email” size=”12″><br>
<input type=”submit” name=”Submit2″ value=”Subscribe”>
</form>

Once you put this code on your site (check in your cgi-bin to make sure you have FormMail.pl first, if not, contact your host) visitors will be able to fill out the form. This will send you a subscribe request and you can add them to your newsletter mailing list.

It will soon take up quite a bit of time, however, to manually add each subscriber. To automate this process, you’ll need an email management program such as IntelliContact Pro (see http://www.intellicontact.com). You can also use these programs to send your newsletters very quickly and personalize each email with mail merge fields.

Step four: The Crucial Follow-Up Email

In between your monthly newsletters you must send a follow-up email to each of the customers that have purchased from you recently. Although it will change depending on your product, it is always good to give a month or so for clients to evaluate your products. So if it was June 15, for example, I would send a follow-up email to all the customers who had purchased one of my products between April 15 and May 15. Adjust this to the specificities of your product. However, do not email all your customers every time, just those who purchased within the interval.

Here’s a sample customer follow-up email:

Subject: How is [product] doing for you?

[firstname],

I wanted to personally thank you for purchasing [product] on [date]. How is it doing for you? Have you been pleased with the results?

Do let me know if I can answer any questions or be of any assistance.

Warm regards,
Joe Smithers, President
XYZ Corporation
joe@xyzcorp.com
1-800-242-4231

Do note that I used the mail merge fields [firstname], [product], and [date]. These fields are stored in a spreadsheet or database for each subscriber. Using these makes it much easier to personalize each email and save hours of time. You’ll need to use an email manager with mail merge capabilities such as Mailloop, Postmaster Express, or IntelliContact to be able to use these.

In practice, I’ve seen this email double sales totals for the day it was sent out. Much more important that this, however, is that it enables you to develop a personal relationship with your customers and continue the process of turning them into clients. The response from the email will tell you how your product is performing, how your product can be improved, and what else your customers are wanting, This is truly valuable information. It is also a great way to obtain wonderful testimonials. One company I used to work with collected over 250 testimonials and success stories through the use of this email alone.

Creating this loop of client feedback is essential to knowing what the market wants, keeping your competitive edge, and constantly refining and improving your products. If you want to increase your market share and grow your company obtaining and analyzing customer feedback is crucial.

So in review, here’s what you need to work on…

1. Instead of creating customer to company relationships, create client to owner relationships. Personalize each transaction. Offer the valuable service of your advice and take care of your customers. De-commoditize your products. Build trust and rapport and begin to turn your customers into clients.

2. Make yourself available, make yourself open to questions. Answer emails and questions on orders personally or have trained support answer each question and provide quality advice in your name. Impress your clients with your level of sincerity and quality of advice.

3. Send out a monthly email newsletter with quality related content to further build rapport and trust. Use a form on your site to allow visitors to subscribe or unsubscribe and a program like IntelliContact Pro (see http://www.intellicontact.com) to manage the subscribe and unsubscribe requests and send out personalized and mail merged emails.

4. Send out a monthly email follow-up to all clients who have purchased from you between one month and two months ago. Creating this loop of feedback is essential to improving your product and knowing what your customers want, will be a powerful step in building relationships with your clients and increasing their lifetime value. Plus it is a great way to obtain testimonials.

Once you have these four steps in place you will begin to develop strong relationships with your clients, greatly increase their lifetime value, and have turned fickle customers into evangelizers who will encourage their friends to buy your product too.

Once you have developed strong relationships with your clients and sown the seeds of success by encouraging word of mouth you can coast along towards that island getaway home you’ve always wanted.

This Marketing article was written by Ryan P Allis on 2/9/2005

Ryan P. Allis, 20, is the author of Zero to One Million, a guide to building a company to \$1 million in sales, and the founder of zeromillion.com. Ryan is also the CEO of Broadwick Corp., a provider of the permission-based email marketing software and CEO of Virante, Inc., a web marketing and search engine optimization firm. Ryan is an economics major at the University of North Carolina at Chapel Hill, where he is a Blanchard Scholar. [learn more.