How do you value your customers

Paying customers are the lifeblood of any company. Yet I find that some business owners and company leaders think that a customer’s worth is only based on how much they buy from their company. This is a common shortsighted mistake. In reality, the entire “life time value of a customer” (LTV) is based on seven measurements which every company needs to utilize:

1. Revenue minus cost

For many companies, 20 percent of their customers produce 80 percent of their revenue. What small business owners often forget is the cost to service these top customers.

What is the gross profit margin on a customer?

There are always customers that take up more than their share of resources for the revenue they produce. In this case, the customer might need to be fired. It is important to understand how much revenue a customer produces, but also what it actually costs to service that customer. The business may actually be more profitable without them!

2. Revenue timing

If the company is a seasonal based business with a maximum capacity, a retail customer that buys in February may be more valuable to a business than one that buys in December. At
the holidays, the customer may not even be able to get the service that maximizes their LTV.

3. Referrals and “buzz”

A customer that provides ‘buzz” for your company multiplies the effect of their purchases. For example, if a customer refers two other customers—which the business didn’t pay
for to acquire—then they can be worth three times their original sale boosting their LTV.

This is why “The Ultimate Question” from Fred Reinhold is so important. How likely is it that you would recommend this company to a friend or colleague? If customers are
likely to recommend a friend or colleague, then that business has a high chance of succeeding long-term.

4. Retention – by far this is so important.

Getting new customers in a challenging economic environment is difficult. It is always cheaper to retain customers than to constantly find new ones—many business experts put this cost at 5-7 times higher. Having these types of customer revenue annuities is one of the best ways to build a stable and profitable business.

5. Add-on products or services

It is a lot easier to sell new products or services to existing customers than to new ones. These customers already know and trust the company. This strategy has made Amazon and
Zappos very successful as their great customer service and order process efficiency gets extended to any product they sell. For example, Amazon gains business when consumers find a product to buy, and then they see if Amazon sells it.

6. The customer’s brand

References are the most powerful selling tool that any company has. Even more important, if a company did business with a major brand, or someone well respected in the market place, town, city, etc., they can use that reference to get more business. Prospects think that if the company did a good job for …., then they can do business with me!

7. Feedback

Does the customer tell the business what they are doing well and what is going wrong? This is incredibly valuable feedback that can be applied across the entire business. Making these types of improvements can multiply the customer’s long term effect.

So think about your business.  How do you value your customer?

Organizational Values

Several days ago I asked some colleagues to share how they have implemented core values  in their organizations .  The answers were pretty much unanimous across the board.  Once values are defined, they should impact every aspect of your organization. You must support and nurture this impact or identifying the values will have been a wasted exercise. People will feel fooled and misled unless they see the impact of the exercise within your organization. If you want the values you identify to have a true impact on your organizational culture, the following must occur.

• People at all levels demonstrate and model their values in action in their personal work behaviors, decision-making, contribution, and interpersonal interaction.
• Organizational values help each person establish priorities in their daily work life.
• Values guide every decision that is made once the organization has cooperatively created the values and the value statements.
• Rewards and recognition within the organization are structured to recognize those people whose work embodies the values the organization embraced.
• Organizational goals are grounded in the identified values. Adoption of the values and the behaviors that result is recognized in regular performance feedback.
• People hire and promote individuals whose outlook and actions are congruent with the values.
• Only the active participation of all members of the organization will ensure a truly organization-wide, value-based, shared culture.

Core Values and Organizational Culture

Values exist in every workplace. Your organization’s culture is partially the outward demonstration of the values currently existing in your workplace. The question you need to ask is whether these existing values are creating the workplace you desire.

Do these values promote a culture of extraordinary customer care by happy, motivated, productive people? If not, you will want to:

• Identify the values that currently exist in your workplace;

• Determine if these are the right values for your workplace; and

• Change the actions and behaviors by which the values are demonstrated, if necessary.

To really make a difference in your organization, you need to do all three. I have had the opportunity to serve organizations that have written core values and those where core values were communicated by actions mostly – in the ways in which business is conducted on a day-to-day basis, and not so much in words directly spoken or written. I am a firm advocate of demonstrated values more than written or spoken – actions speak louder, but I also believe that written values that reinforce and support specific actions, and specific actions that reinforce and support written values, make a powerful combination that far exceeds one or the other by itself. If it is written down and demonstrated in action, we can really hold our feet to the fire when we need to. Effective organizations identify and develop a clear, concise and shared meaning of values/beliefs, priorities, and direction so that everyone understands and can contribute.

I have asked some colleagues to share how they have implemented core values  in their organizations and will share that feedback in a few days.  How does your company demonstrate their core values?  Are they just written words or philosophical pillars upon which your company is built?