How Much Are Your Customers Worth?

Let's talk about money today.

Specifically, what your marketing costs - and what you get in exchange.

And let's talk about the meaning of words - because the way we describe things to an extent determines what we do.

Thus, if you talk about junk mail, you're more likely to produce it.

But first, a little joke provoked by the torrent of e-mails I got in reply to my foolish offer of a video. which I then had to make. AAAAARGH!


"That's another fine mess you've got me in."

I apologise if you're familiar with what follows - but I find that many aren't; and of those who are, a surprising number don't act upon its important implications.

Some people talk about marketing "spend". Others talk about marketing "investment".

You'll probably agree that those who see it as spend are more likely to make it one of the first things they cut down on when times are hard. Those who see it as investment are less likely to do so.

Well it is an investment - and a wise one. Firms that spend more on marketing are on average more profitable than firms that don't.

What's more, firms that keep spending when times are hard tend to emerge even stronger than before - for a simple reason: they have a greater "share of voice" when an industry is spending less as a whole.

Of course, many firms may talk about marketing as an investment - but not mean it. They wish to sound as though they're thinking intelligently about it, but they don't really mean it.

In fact most firms manage their marketing to suit their internal needs, which is crazy. Because they should just think in terms of the real commodity in business, which is not actually money, but people.

Take the subject of what you lay out and what you get.

How do people work it out? In many ways.

A firm might take a percentage of turnover or overhead as the right marketing budget.

Many, though are led by expediency. Recognise any of the following?

	"We need more sales volume; let's spend more money."
	"We have to send more profit to the US. Spend less on marketing".
	"Last year we had a good year. Put up the budgets!" - or vice versa.
	Our new CEO wants to change the world. Increase marketing spend."
	Five years later, "Our big-mouthed CEO hasn't changed the world. How can we get better figures? Slash marketing budgets."

Professional direct marketers (many are not, unfortunately) think first about what they are really investing in.

It is not advertising or direct mail: it is gaining and keeping customers.

Remember, the currency of your business is customers - and act accordingly.

So the big marketing question is, "how much is customer worth to you?"

If you've been in business for a while you can measure how long customers stay with you, and how much profit they provide in that time.

Then you discount the sum to determine what you can afford to recruit and retain a customer, allowing for a profit.

It is true that some sales are not repetitive, but in those cases you can often, if not always, cross-sell other things.

The importance of customer value came home to a client who sold what they call an fmcg (fast moving consumer goods) product here - and packaged goods in the U.S.

He asked me, "If the gross margin on one sale is 80 pence, how can I afford to send out direct mail at 100 pence a time?"

I asked him if he knew the average value of a customer over time - not just one sale. He said he'd never given it a thought.

And I said, "You can easily afford it if you know your average customer buys 200 packs a year and stays with you for five years - and you think not about making an immediate sale, but making and keeping a customer".

He became my largest client.

The same principle applies if you work out how many cars you can sell a customer over a lifetime. You can afford a series of very expensive direct communications - DVDs, books, lavish mailing packs and so forth.

But it all starts by thinking in terms not of expenditure, but return on investment, and taking a lot of trouble to try and assess what a customer is worth.

Best,
Drayton

P.S.  This is number 34 of Drayton Bird’s 101 free helpful marketing ideas.  You can sign up on the link below for the rest.

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Website: www.draytonbirdcommonsense.com / www.eadim.com

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