Underestimating lifetime value

I’ve met a lot of business people that lament the small sales. You know, those ones that took ages to win or get across the line and were worth less than they hoped in the initial transaction.

A quick calculation of cost of acquisition at this stage can be disappointing, sure. But this is a short term view of customer value.

If you consider that your marketing costs, sales costs and general costs of doing the initial business are heavily weighted against your first transaction you are missing the real opportunity.

Your opportunity is to throw the kitchen sink at wowing the customer in their first experience of what you do and ensure that they feel validated in spending more with you in the future.

Your first sale is just that. Your first one.

If you get your customer service right and over deliver on expectations you can sell to this new client again and again.

If you regularly spend your time deliberately thinking about how you can further add value and generate new ideas, that help with this client’s business needs, you can then work towards growing their expenditure with you over time.

Now consider if you did this, and made a sale every year, what would your new client be worth to you long term? Do your calculation again, less the cost of acquisition from year one, then extrapolate your profit over the following years.

You will find a very different figure.

Add in the cost of your time doing real account management (working on ways to add value to the relationship) and you will have a real understanding of the return on your time invested and the true value of your new client.

My person feeling is to over-invest in new clients at the front end.

Here are three things you can do to do this consistently:

  1. Create a client development worksheet

A client development worksheet should help you temperature check your relationship with any given client at any point in time. It should capture when you last met, what has been discussed, what projects have been completed, how “sticky” you are with key stakeholders and capture new ideas and touch points designed to add value to that client.

  1. Book “ideation” times into your calendar

Instead of trying to find the time to put aside when you are busy – book intentional times in your calendar way in advance in regular time periods (e.g. monthly or three monthly) and commit to them. These are your times to think about how you can help your client and bring more to the relationship than just a transaction.

  1. Allocate budget to surprising and delighting your client

When I client kicks off with you, put money aside for future ways to surprise your new client. You may not know how you are going to spend it yet – but this gives you freedom to get creative when the time rolls round to show them what they mean to you.

Invest in your new clients (no matter how small) and give them the chance to develop with you. Some may not and you may consider getting choosier about who you work with in the future. But some will develop into top tier clients who become a key part of the growth of your business.