Value of a Customer
Friday, October 23rd, 2009What does it cost?
Have you ever gone to a local store because of their advertisement? And have you been disappointed by the overall customer experience?
The company, you add the name, just wasted valuable advertising dollars on poor customer service. Buy low. Sell high. Keep the difference. Customer service is an expense that increases businesses costs, the buy part of the equation and reduces the difference. Businesses face a myriad of costs from credit, insurance, bank and credit card fees, labor, shipping, travel, taxes and now add the cost of customer service, wow!
If you can pass all of these costs along to your customers and remain competitive, great. If not, then your profit margin takes a hit. In business someone has to pay every cost (although the government is trying to change that). The simple choice is; either you or your customer. If the business does not pass a cost along to the customers, then they are paying. The question, are your pockets that deep? Will your customers accept these costs?
There is a way to take charge and reduce businesses expenses. These are scary times to be in business and determining the real cost of doing business may be something you would rather not know. The good news is that a close examination of business expenses will identify areas that are controllable. Armed with this information, a plan can be developed to trim costs and increase profits.
Customer Service is one controllable expense that, when addressed, will produce a win/win for you and your customer. Advertising should always be looked at as an investment in your business. Creating and implementing effective advertisement is a great way to increase sales. You are buying leads to interested potential customers. Customer service converts these leads to sales.
If the advertisement effectively attracts potential new customers, it has done its job. If this potential client is converted to a customer returning again and again, then your investment has paid off. If, however, a potential customer has a bad buying experience, then your investment in advertising has turned into a business expense that should be reduced.
The value of a new customer can be calculated, and that final number may surprising. In a simple example of a restaurant bringing only $10 per customer means that single customer represents over $1,500. If you spend $5,000 on an advertising campaign that produces 10 new customers…well it doesn’t take an MBA to figure out this was a good business decision. Using the “New Customer Value” worksheet is the tool needed to calculate the value of a new customer. The sheet is available in two formats, an Excel spreadsheet containing formulas and a PDF file for hand calculation. Click to download below:
Value of a Customer Worksheet (Adobe PDF)
Value of a Customer Worksheet (Microsoft Excel)
During economic downturns you will have time to closely examine your business, make corrections, and be ready for the inevitable upturn, returning with a leaner, more profitable company. Knowing the value of a customer, new and old may not only pleasantly surprise you but become a helpful tool for measuring your advertising investment against the benefits produced. Your staff can see the economic value of providing good customer service, which promotes the success of your business, moving it to the next level.
