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Determining the Value of Your Customer

(May 2015) posted on Tue May 26, 2015

Sales are down -- time for some cold calls, right? Maybe not. Your most lucrative growth opportunities probably lie with clients you already have. Learn how to calculate (and maximize) a client's value.

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By Mark A. Coudray

It never ceases to amaze me: When business is slow, the owner’s first reaction is, “I need more customers.” I think this is a natural, but often misdirected response. Few business owners understand that getting new customers is the most expensive, time-consuming way to grow. In fact, it’s seven times more expensive to get a new customer than to increase business from your existing clients. Digital marketing and advertising is fundamentally different than the traditional marketing and advertising most of you have done. The old joke among business owners is that half of their advertising budget is wasted – they just don’t know which half. This is a typical observation for traditional campaigns that lack feedback, metrics, or analytics.

To put things in perspective, there are only three ways to grow any business:
1. You can prospect for new customers, the most common, difficult, and expensive approach.
2. You can increase the average order size from your existing customers.
3. You can increase the frequency with which your existing customers purchase from you.
The interesting thing is that these efforts are independent of one another: You don’t have to focus on one at a time. The successes you have in one area will be multiplied against the others, making it very easy to accelerate the growth of your business.

This month’s column will focus on growth from your existing clients. I’ll show you how to determine the value of your customer base, an exercise most businesses never do. The most valuable asset you have is not your hardware, equipment, or building: It’s your customers. How do you know if your customer base is reaching its full economic potential?

What is a Customer Worth to You?
Not all customers bring the same value to your business. We all have clients that are pains in the behind, ones we only do business with because they bring substantial volume. Actually, the biggest customers may not be all that profitable. Are they really worth the trouble? You need to compare them against the rest of your customers in order to decide.


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