# One of the biggest mistakes a business can make is forgetting to by fionan

VIEWS: 4 PAGES: 5

• pg 1
```									9
“Your customers don’t care how much you know. They want to know how much you care.”
Matt Clarkson, Managing Director, Megahits Media

Winning the customer’s heart

O

ne of the biggest mistakes a business can make is forgetting to maintain a relationship with a new customer. New customers are important, but we often put a heap of energy into turning a potential customer into a customer, and as soon as we make the sale, we forget all about them and start chasing more new customers. This is a terrible mistake because in any good business you could make most of your profits out of additional sales to your existing customers. Let me repeat that. The really big profits in your business could be in increasing sales to the people who are already your customers. Why is that? Because it is generally much easier, and a lot cheaper, to sell something else to

winning the customer’s heart

77

an existing customer than to find and win a new customer. This means they should be more profitable. One of the biggest obstacles you have to overcome when selling is earning the trust of a new customer. On the other hand, if you have already sold something to a customer and they trust your product, chances are they will want to buy more from you. Your odds of selling something else to them can increase dramatically.

Over the course of one year, Jane will visit you at least eight times. Let’s assume	the	average	gross	profit	is	\$14	per	sale	and	a	gross	profit	margin	 of	40%.	Let’s	work	it	out: 	 	 	 	 •	 •	 •	 •	 P	=	\$35	average	\$	sales	value	per	visit C	=	\$21	average	\$	direct	costs	per	sale	 S	=	8	average	no.	sales	per	year Y 	 	 =	 1	 average	 no.	 years	 as	 a	 customer	 (for	 the	 sake	 of	 this	 exercise	 we’ll say one year, but it would likely be longer) L	=	(\$35	–	\$21)	x	8	x	1 So	L	=	\$112	average	lifetime	\$	profit	per	customer

Now let’s assume you were able to sell Jane an eyebrow wax for every visit at	a	cost	of	\$15	(with	an	average	gross	profit	of	\$10	per	sale).	The	total	 sale	is	now	worth	\$50,	the	gross	profit	is	now	\$24	per	sale,	and	your	total	 gross	profit	margin	is	48%.	Let’s	work	it	out: L	=	(\$50	–	\$26)	x	8	x	1 L	=	\$192	in	gross	profit	per	year	to	your	business. That	represents	an	80%	increase	in	gross	profit	from	Jane	in	one	year!	 Over	 five	 years,	 Jane	 could	 be	 worth	 \$960	 in	 gross	 profit,	 and	 over	 30	 years,	\$5,760	(not	taking	price	increases	or	staff	costs	into	consideration).	 It may not seem like much for one person over 30 years, but consider if all your customers were like Jane. 	 •	 	 f	you	had	100	Janes	spending	\$50	at	your	business	every	six	weeks?	 I Over	five	years,	their	business	could	be	worth	\$96,000	gross	profit. 	 •	 	 f	you	had	500	Janes	spending	\$50	at	your	business	every	six	weeks?	 I Over	five	years,	their	business	could	be	worth	\$480,000	gross	profit. So, can you afford not to have a strategy in place to increase the sales value of your current customer base?

The value of a customer
Have you ever stopped and actually worked out the lifetime value of a repeat customer? The lifetime profit value of a regular customer can be determined by the following formula: L = (P – C) x S x Y Where: 	 	 	 	 	 •	 •	 •	 •	 •	 L	=	Average	lifetime	\$	profit	per	customer P	=	Average	\$	sales	value	per	visit C	=	Average	\$	costs	per	sale	 S	=	Average	no.	sales	per	year Y	=	Average	no.	years	as	a	customer

Let’s take a moment to do some quick calculations using a beauty salon as an example. Jane is a regular client at your salon and has her legs waxed every	six	weeks.	Each	time	she	comes	in,	she	spends	\$35	on	a	treatment.

78

winning the customer’s heart

79

How much have you invested in your customers?

Easy ways to drive loyalty

You may think your customers are not worth spending any money on to retain. Let’s look at how much you have already spent on them before you walk away from your investment.

(a) How long have you been in business? (b) How many customers do you have? (c) How much do you spend on advertising? (d) How much are your overheads (rent, wages, etc)?

4 1,200 5,000 195,000
= \$

years

p.a. p.a.

So how much you have already spent to acquire and serve the customers you have?

( (c)

5,000

+ (d)

195,000 )

x (a)

4

800,000

In this example, that’s \$666 per customer! Do you treat every customer as a valued client?
You should also consider the average gross profit of each customer over the	same	period.	If	it	is	less	than	your	investment	(in	this	case	\$666),	you	 need to reduce your outlay, or increase their sales value. Three ways you can increase your customers’ sales value include: 1. 2. 3. Give them a reason to buy from you more often Up-sell or cross-sell new products at point of sale Increase profit margin per item by paying less for your stock or charging more for the sale.

Loyalty programs
Many	 businesses	 invoke	 the	 ‘80/20	 rule’,	 80%	 of	 sales	 revenue	 comes	 from	only	20%	of	customers.	Your	most	profitable	customers	might	also	 be your competitors’ most profitable customers, so the aim behind loyalty programs is to reward customers for their loyalty to you as their preferred supplier. Perhaps the most known of loyalty programs are the frequent flyer programs offered by the major airlines. These are aimed at inducing customers to use one airline exclusively via a points system, the main benefit of which is free travel. A successful loyalty program is one that stops the customer shopping around your competitors for a better price.

Remember, you have already done the hard work of getting these customers	through	the	door,	now	capitalise	on	it!	One	of	the	best	ways	to	 do this is by introducing a customer loyalty program.

80

winning the customer’s heart

81

In a nutshell, an effective loyalty program is one that’s mutually beneficial for both parties.
Elements of a good loyalty program

angry	 or	 frustrated,	 while	 you	 record	 the	 details	 of	 sales	 transactions!	 Providing your customers with an individual bar-coded card is the ideal alternative.
Brochures

•	 	 he	 perceived	 value	 of	 the	 redemption	 rewards:	 The	 greater	 the	 T perceived value of the rewards, the more interest you will generate in the program, and the more often your customers are likely to purchase 	 •	 	 he	 range	 of	 choice	 of	 the	 rewards:	 The	 greater	 the	 variety	 of	 T rewards available, the higher the percentage of your customer base likely to join, as you are catering for a wider range of tastes 	 •	 	 he	perceived	likelihood	of	achieving	the	rewards:	Your	customers	 T have to believe they will be able to achieve these rewards in a reasonable period of time. Instant gratification is a stronger influence than delayed gratification 	 •	 	 he	program’s	ease	of	use:	Your	program	is	unlikely	to	work	if	your	 T customers need a PhD to work it out 	 •	 	 he	psychological	benefits	of	belonging	to	the	program	and	accumulating	 T points: The more special the customer feels, and the more satisfaction they derive from being a ‘privileged member’, the more enthusiastic they are likely to be about visiting your business more often. Before launching your own loyalty program, see what your competitors are doing and try to improve on, or differentiate your program from theirs. Consider subscribing to or participating in a competitor’s program to see how their communication and program runs from a customer perspective.
Membership cards

You should create a brochure fully explaining your rewards program. As the brochure will be one of the few ‘upfront’ costs, consider having it professionally designed and printed in full colour. Spend a little extra to make it look fantastic, and make sure the brochure is specific about: 	 	 	 	 Why	you	are	running	this	loyalty	program How	it	will	benefit	your	customers The	scale	and	scope	of	the	rewards	or	benefits	they	can	obtain W 	 hat	potential	customers	have	to	spend	to	qualify,	and	if	there	are	 any time limits 	 •	 The	mechanics	–	how	the	program	works.	 •	 •	 •	 •

One of the key points to remember when you have a loyalty program is to tell the potential customer about the program before they buy. Imagine making a decision on a high-ticket item – a motorcycle for example. You do the research and choose a model. When you make your offer and the sales rep accepts, he tells you about their loyalty program. All new customers receive	 a	 loyalty	 card	 entitling	 them	 to	 a	 10%	 discount	 on	 all	 accessories,	 parts	and	apparel!	While	it	is	great	news,	it	is	also	the	kind	of	information	 that might help prospective customers make their purchase decision much faster. So, in order to help the sale, they need to know before they buy not after. If you have a loyalty program, make sure every sales person knows about it, and ensure they tell every potential customer.
Affiliate programs

Membership cards are a quick and efficient way for customers to show they are part of your loyalty program, and therefore deserve special attention. You should include sufficient customer details to efficiently and accurately identify each customer every time they purchase. After all, when you are busy, you don’t want customers waiting to be served, getting

In essence, affiliate programs are when you serve as a ‘host’, introducing someone else’s products or services to your customers by way of endorsement. This is a common practice in internet marketing because referrals are so easy to track and measure. (More on this in chapter 13).

82

winning the customer’s heart

83

The key benefits to your business are: 	 •	 	 ou	 can	 widen	 your	 existing	 product	 range	 without	 having	 to	 hold	 Y additional inventory or hire more personnel. You are basically leveraging other people’s investment and skill 	 •	 	 ou	can	pick	up	additional	income	from	your	customers	which	may	 Y otherwise have gone elsewhere 	 •	 	 	fixed	dollar	or	percentage	commission	from	each	sale	can	provide	 A you with an additional profit stream 	 •	 	 epending	 on	 the	 nature	 of	 your	 business,	 you	 may	 be	 able	 to	 D promote yourself as a ‘one-stop-shop’ for all your clients’ needs in a specific product category, creating a potential competitive advantage in the market. Loyalty and affiliate programs are valuable elements of a marketing strategy. However, it is recommended, before any program is implemented, to have your accountant and legal adviser review the program to confirm there are no cash flow or legal issues which could prove expensive.

84

```
To top