Do You Know The “Life Time Value” of Your Customers?

What is one of your customers worth to you over a three year period?

I was watching one of those Court TV shows; the judge was dealing with a bakery and a customer that had been doing business with the bakery for 30 years.

The customer ordered  two cakes for a total of $800.00 for a special occasion. The bakery messed up the order on both cakes. The cakes looked nothing like what the customer ordered. There was no one at the bakery to fix the cakes and her event was in two hours so the customer took the cakes and consumed them at her event.

The customer went back a few days later to ask for a full refund. The bakery owner offered her a $100 gift card. The customer insisted on a full refund, the owner refused. His reasoning: “I don’t want to give anything away, even to long-term customers”. The customer took him to court.

The customer told the owner that she will never do business with him ever again.

If the bakery owner understood the concept of “LIFE-TIME VALUE OF A CUSTOMER” he would have refunded her the $800.  I don’t know what the profit margin is on cakes, but lets say his cost was $400.00. Profit $400.00.

That customer had spent thousands of dollars over a 30 year period at his bakery.  The bakery owners gave up thousands of dollars in future sales because he was very short sighted. He did not do the simple math. Invest $400 in retaining a customer and get thousands of dollars back in sales. When you look at it this way, it’s easy to see he did not handle the situation correctly.

The judge awarded the customer $400.00, but from a business perspective, that’s irrelevant.

When dealing with your customers do you consider the “LIFE-TIME VALUE OF YOUR CUSTOMERS”?  Remember the quote: “What gets measured gets managed.”  Have you measured the “LIFE-TIME VALUE OF YOUR CUSTOMERS”? Knowing this number could help you get a fresh, new perspective on how to manage your customers.

How would you have handled this situation? Tweet me @dMarketingCoach.

Author: Kevin Toney is “The Marketing Coach”. Kevin coaches small business owners and sales professionals on how to find and attract new customers, increase repeat business and generate a steady flow of referrals. Call 204-783-6342 for a FREE 30 minute over the phone Coaching Session.