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Published on July 28, 2009

Author: duanesprague55

Source: slideshare.net

## Description

This was an award winning presentation from TEC (The Executive Committee) a global organization of CEOs. Duane presented this seminar to CEOs throughout the country, who gave it rave reviews for simple techniques to grow their businesses.

You will learn the principles of customer retention and formula for calculating the lifetime value of a customer.

What You Will Learn Today 3 reasons why clients stop buying from you. 3 ways to retain more clients.

3 reasons why clients stop buying from you.

3 ways to retain more clients.

Growing your business through Customer Retention provides the most reliable long-term growth strategy to improve your bottom-line and is the most cost effective. Why?

Who is More Profitable? OLD CUSTOMERS NEW CUSTOMERS

Who Closes at a Higher Rate? 28-30% vs. 15% OLD NEW

Who Generates Higher Gross Profits? OLD NEW

Who Generates More Referrals? OLD NEW

Who Can You Re-Sell at a More Cost Effective Rate? OLD NEW

Who is Easier to Reach and Advertise to? OLD NEW 10

Who is More Valuable and Profitable? G OLD NEW

Retaining just 5% more of your customers can boost profits by 25 to 120%

Sale Sale Sale Sale Customer Retention Cycle

1x Sale 1x sales lead to “flat line” growth, which leads to Chapter 7, 11 or 13 Bankruptcy

Computing the Lifetime Value of a Customer: Calculate the total aggregate profit of the average customer over the lifetime of their patronage — including all residual sales of all products and services — less the average customer acquisition cost for advertising, marketing and fulfillment expenses. 15

Example: Your average customer makes an initial purchase of \$1,000 which brings you a \$500 gross profit.   They make 3 more \$1,000 purchases the first year for another \$1,500 in gross profit.   The first year you have a gross profit of \$2,000.

The average customer buys for 3 years and makes 4 purchases per year with a \$500 gross profit per purchase. \$2,000 x 3 years = \$6,000 gross profit per customer – \$350 acquisition cost for advertising, marketing & fulfillment = a lifetime value of \$5,650.

You should also factor into the calculation how many referrals the average customer generates. If the average customer generates one referral, their lifetime value has more than doubled, because the referral does not have the \$350 acquisition cost, for a potential lifetime value of \$11,650.

Now, what if you did not retain this customer after the first sale, your gross profit after acquisition costs would have been only \$150.   If your average customer has a lifetime value of \$5,650, can you afford to spend more on acquisition to build market share, and can you afford to spend \$30 on retention to extend their lifetime value?   Is your marketing budget based on a percentage of sales, or on your sales goals?

Calculate Your Customer Lifetime Value:   Average number of purchases per customer per year: _________________ Average profit per purchase: x________________ =________________ Average life span of a customer in years: x________________ Minus acquisition costs: – _________________ Lifetime Value: =_________________ 20

With existing customers you have already made the big acquisition investment, so additional sales are more profitable.

Advantages of existing customers vs. new customers: Shorter sales cycle Spend more Buy more often Refer other people Less price sensitive Identifiable and targetable

Shorter sales cycle

Spend more

Refer other people

Less price sensitive

Identifiable and targetable

How many existing customers do you lose each year to competitors?

The average U.S. company loses 10 to 30% of their customers each year.

What Does it Mean to Lose 30% of Your Customers? It means you have to acquire 40% more customers each year just to show a 10% growth. 25

It means you have to acquire 40% more customers each year just to show a 10% growth.

It means you’ll spend more money on advertising than a competitor for the same growth rate if your competitor retains their customer base at a higher rate.

It means you’ll spend more money on advertising than a competitor for the same growth rate if your competitor retains their customer base at a higher rate.

It means your average cost per sale will be higher.

It means your average cost per sale will be higher.

It means your overall marketing efficiency will be lower.

It means your overall marketing efficiency will be lower.

How much does it cost you to replace up to 40% of your customers each year?

In the retail automotive industry, it costs \$430 to replace or acquire a new customer. 30

Calculate Your Customer Acquisition Cost:   Total annual advertising and marketing budget:\$________________ Divided by the total number of new customers you sell per year:_________________ Total Customer acquisition cost: =________________

Is it even possible for you to replace up to 40% of your customers each year?

3 Reasons Why Clients Stop Buying From You. #1 You become out of sight and out of mind.

You become out of sight and out of mind.

3 Reasons Why Clients Stop Buying From You. #2 They became dissatisfied with your company for something you did or did not do.

They became dissatisfied with your company for something you did or did not do.

3 Reasons Why Clients Stop Buying From You. #3 Their situation has changed, and they no longer need or can justify the purchase. 50%

Their situation has changed, and they no longer need or can justify the purchase.

Of the 3, which is the number one reason?

Two-thirds of customers surveyed said they left because they felt unappreciated.

3 Ways to Retain More Clients. #1 Focus 15 to 25% of your marketing resources on creating regular, meaningful and personalized contact with your existing customers. For example: Send seasonal holiday greeting cards.

Focus 15 to 25% of your marketing resources on creating regular, meaningful and personalized contact with your existing customers. For example:

Send seasonal holiday greeting cards.

Send special invitations to VIP sale promotions or events. Recognize your best customers by offering “Loyalty Programs” that offer special deals, premium services and helpful information.

Send special invitations to VIP sale promotions or events.

Recognize your best customers by offering “Loyalty Programs” that offer special deals, premium services and helpful information.

“ The job of a company and a salesperson is not to make sales, but to make loyal customers .”

Create opportunities for customer feedback. Send postage-paid opinion surveys after each purchase. Send exit surveys to customers or prospects you have lost to determine what you could have done differently. Send apologies to customers who complain or have a bad experience.

Create opportunities for customer feedback. Send postage-paid opinion surveys after each purchase.

Send exit surveys to customers or prospects you have lost to determine what you could have done differently.

Send apologies to customers who complain or have a bad experience.

Send announcements of new products, new services, new hours, new employees, or new locations. Send newsletters or article reprints with helpful tips, industry news, or information that’s relevant to the customers’ business, or their personal or professional life. Send a request for referrals, and follow-up with a “thank you” note and a gift certificate.

Send announcements of new products, new services, new hours, new employees, or new locations.

Send newsletters or article reprints with helpful tips, industry news, or information that’s relevant to the customers’ business, or their personal or professional life.

Send a request for referrals, and follow-up with a “thank you” note and a gift certificate.

Recognize your company milestones such as industry awards, endorsements, new patents, etc. Send a card recognizing personal milestones and birthdays. Send an appropriate gift after a purchase. 50

Recognize your company milestones such as industry awards, endorsements, new patents, etc.

Send a card recognizing personal milestones and birthdays.

Send an appropriate gift after a purchase.

How many if any of these or other retention ideas are you doing now?

What else could you be doing?

“ Today’s follow-up is a down payment on your future.”

3 Ways to Retain More Clients. #2 Segment your customer database to identify your bottom 20% of customers, your core 60% and your top 20%.

The Pareto Principle: “The significant items in a group normally constitute a relatively small portion of the total items in the group.” Also known as the “vital few and the trivial many,” or the 80/20 rule. 55

Who are your least profitable customers? How much time and resources do they consume? Are they more effort than they’re worth?

Who are your core customers, those that comprise the middle 60%? What characteristics do they have in common?

Who are your top 20% or VIP clients? What characteristics do they have in common? What makes them different from your bottom 20% and your core 60%?

Become passionate about retaining your VIP clients. Understand them. Predict their needs. Solve their problems. Make their life easier. Save them time.

Provide them with direct access to top management. Provide gratuitous services. Never let them down. 60

3 Ways to Retain More Clients. #3 Give your core 60% and especially your top 20% of customers what they want.

Give your core 60% and especially your top 20% of customers what they want.

Companies are offering their customers everything—except what they really want.

In a survey of 6,000 retail consumers across the U.S. and Europe, it was found that the majority of people don’t want what we thought they wanted.

We assumed they wanted either the lowest price , or the best quality . The truth is, they want “ acceptable quality ” and “ fair and honest pricing .”

What Do Your Customers Really Want? What problems do they need solutions to? What benefits or results are they looking for? What level of quality or service is “good enough” for them? 65

What problems do they need solutions to?

What benefits or results are they looking for?

What level of quality or service is “good enough” for them?

You can’t sell products or services, you need to sell solutions .

In order to sell solutions, you may need to break the 10% Rule. The 10% Rule : “Everybody within a a specific industry does the same things, and offers the same products advertised and marketed in the same ways plus or minus 10%.”

What You Learned Today 3 reasons why clients stop buying from you. You became out of sight and out of mind. They became dissatisfied with your company for something you did or did not do. They can no longer use or justify the purchase of your products or services.

3 reasons why clients stop buying from you.

You became out of sight and out of mind.

They became dissatisfied with your company for something you did or did not do.

They can no longer use or justify the purchase of your products or services.

What You Learned Today 3 ways to retain more clients. Stay in touch with timely and relevant information and offers. Segment your customer database to identify your worst and best clients. Give your best customers what they want, and provide solutions to their problems.

3 ways to retain more clients.

Stay in touch with timely and relevant information and offers.

Give your best customers what they want, and provide solutions to their problems.

Where to Start 1. Compute the lifetime value of the average customer. 2. Compute the average acquisition cost of a new customer. 3. Compute what you can really afford to spend on new customer acquisition. 70

1. Compute the lifetime value of the average customer.

2. Compute the average acquisition cost of a new customer.

3. Compute what you can really afford to spend on new customer acquisition.

Where to Start 4. Segment your customer database into the bottom 20%, core 60% and top 20%. 5. Create a systematized process and budget for quality customer contact and surveys. 6. Put a loyalty or retention program in place.

4. Segment your customer database into the bottom 20%, core 60% and top 20%.

5. Create a systematized process and budget for quality customer contact and surveys.

6. Put a loyalty or retention program in place.

Duane “DJ” Sprague [email_address] www.duanesprague.com www.vortexplan.com www.squidoo.com/duanesprague

www.duanesprague.com

www.vortexplan.com

www.squidoo.com/duanesprague

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