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Leadership thoughts from PeopleFirst HR

How do you value your customers

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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?

Author: anamcgary

Ana McGary is a seasoned Human Resources and business professional with over 25 years of human resources management and executive leadership experience in Fortune 500 organizations, large and small companies in various industries. Ana is a results oriented HR Business consultant who offers business leaders and executives human resources and business guidance and solutions that enable them to grow and retain their employees and customers. She founded PeopleFirst Enterprises, Inc. in April 2010. PeopleFirst offers human resources practices, guidance and outsourcing services to emerging, small and midsize businesses in the Southeast market. In today’s changing world, capital is scarce. Because PeopleFirst is smaller than some of its larger competitors, we are able to provide similar services that are not pre-packaged and are designed to meet the business needs of each customer at a significantly lower expense. Ana’s areas of expertise include all aspects of human resources management, employment and labor laws, leadership development, multi-site operational management, operational policies, processes and procedures, staff performance optimization, benefits/compensation design, merger/acquisitions integration, and management and executive coaching. Her passions include organizational effectiveness, leadership coaching & development, facilitating individuals, teams and organizations to reach their maximum performance. She has written several articles for business publications and speaks at several conferences throughout the year. Ana has consistently been recognized by her customers as an exceptional communicator and professional adviser. Ana maintains her Professional Human Resources certification as well as her Paralegal certification requirements. She is an active member of The Society for Human Resources Management, nationally and within several southeast chapters. She is also a member of the International Coach Federation and the Georgia Coach Federation. Ana serves as a Board Member for It’s the Journey, Inc. A Georgia based charitable organization and producers of The Atlanta 2-Day Walk for Breast Cancer. She is also a member of the Georgia Hispanic Chamber of Commerce and is fluent in Spanish. PeopleFirst’s approach to Human Resources is partnering with executives, presidents, vice presidents, directors and business owners in managing the human side of the ever changing world of business. We combine creative strategy with tactical leadership to help organizations meet their desired business objectives.

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