Acquiring customers is the first step to building a sustainable, successful business. However, the simplest way to build a truly sustainable business and one that continues to grow is to ensure that your customers keep coming back. That is, to increase their lifetime value. One-time customers tend to be more expensive and deliver fewer profits to businesses compared with customers who buy often.
What is the customer lifetime value (LTV)?
LTV is the average amount of money your customers will spend with your business over the entire life of your relationship. It includes both how frequently they buy from you and how much they spend each time. Having a clear measure of the average lifetime value of your customers (yes, it may vary quite a bit from those customers who buy from you just once and pay you very little, to those incredibly loyal raving fans who keep coming back for years) is the basic starting point for improving it – define how you’ll measure it and start monitoring that.
Of course, the first step in your effort to grow LTV is to provide exceptional products and services at the right price. However, to maximise your repeat business and average LTV, you should implement actions that proactively turn them into lifetime customers.
Benefits of lifetime customers
As customers continue to buy products and services from your business, their value will obviously go up. This is not just because they’re spending more but also because, the longer someone is a customer, the less it costs to sell them new products or services since you don’t have to move them through the entire sales funnel; they’re already at the decision end. In addition, lifetime customers provide many other benefits, including:
- creating effective ambassadors for the business – they tend to be your Raving Fans;
- predicting and reducing customer churn – giving you reliable, predictable revenue; and
- saving money on advertising and customer onboarding.
How to grow lifetime value
When aiming to acquire more lifetime customers, it’s essential to begin at the first stage: acquiring the right-first-time customer. It’s ineffective to assume all customers will become lifetime customers, so you must focus on buying customers first that have the highest likelihood of becoming lifetime customers. Be sure to actively target your ideal customers, not just anyone who will buy something from you.
Once you have acquired a customer, you can proactively manage them up a ladder of loyalty, starting as a Shopper at the bottom and going up to a Raving Fan at the top. If individual purchases from your business once, they are a shopper. Only if they return to buy from you again, can you really consider them a true customer. Simple communications programs are often enough to get customers coming back a second and third time, as it positions them, at each sale, for the next sale.
Offering some form of recognition, or loyalty program can cement their feeling of belonging to something. As a “member” of your brand or community, a customer has every chance of becoming an advocate of your business. At this point, be sure to take great care of them. In what ways can you make your advocates feel special? Are you rewarding them in any way? From there, it’s a natural progression for them to become Raving Fans – the top tier of lifetime loyalty. These customers will fundamentally change your business.
There should be specific activities in place at every one of those levels (Shopper, Customer, Member, Advocate, Raving Fan) to move customers up the ladder to the next stage. For example, persuading a shopper to return to your business through promotional offers can be successful. Offering loyalty programs can also be used to move customers towards the advocate level by providing a more personalised customer experience.
Once a customer reaches the top level of the loyalty ladder, it’s essential to never break the strong communication fostered. Lifetime customers have come to expect the highest standard of customer service, and so you must always build on your relationship with lifetime customers to prove they made the right decision to give their loyalty to you.
They say it’s 6 times easier and quicker to get a past customer to buy again than to find a new one. I don’t know how to calculate that but I do know that the principle is correct. The best way to build a truly profitable business is to have great repeat business. Such customers offer higher margins, refer others to you, provide reliable income and provide a secure foundation for the business. Better still, because you know them well, you can likely provide them with better and more personalized service. And, best of all, they’re people who love what you do…..so are also enjoyable to work with.
So take the time to ensure you have a system in place to move every one of your customers from their current level on the Ladder of Loyalty to the next level.
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