Franchisees: What business are you in?
That's a question every franchisee must answer even before they try to put a value on a customer.
Most franchisees are in the wrong business
Get in the right business! If you think you're in the people business, the service business, the problem solving business, the insurance business, sales business, food business, etc., you're in the wrong business!
Capture and keep em!
The only business to be in is the business of capturing and keeping customers!
Once you get into that business, you can place a value on a customer. Once you get into that business, you can build a satisfying and profitable enterprise.
Calculating value
What's a customer worth?
Depends on how long you keep the customer, obviously. Some franchisees say a customer is worth one sale. For example, if the franchisee sells a product or service that costs $1,000, then the customer is worth $1,000.
That's one way of looking at it. But it's not the best way.
Sell for a lifetime
Other franchisees know that a customer is worth a lifetime of sales. If the franchisee sells a product or service for $1,000 and over a period of time the customer buys 10 times, that customer is worth $10,000. That's a better value!
They want to buy repetitively
The sad truth, however, is that few customers ever get an opportunity to buy for a lifetime, whether that lifetime is a year or several years (the average lifetime for a retail customer in the USA is estimated at 7 years). They don't get the opportunity for four reasons:
The franchisee (or the franchisee's employee) doesn't invite them to come back!
The customer moves away from the business.
The customer has an unresolved service issue.
A friend of the customer says there's a better place to buy!
As a result of these issues, franchisees are losing money (sometimes losing their businesses) because they don't understand customer value. They get a customer, make a sale or two, and then lose the customer (often without even knowing what occurred). There goes thousands of dollars of value!
One-time buyers take away value and profit
Typically, a customer makes a purchase and never returns. If it costs the franchisee $100 to get that customer to come into the business, and the customer's purchase was less than $100, the franchisee has an economic problem!
It costs less to keep than to capture
It's difficult to capture a customer, and it's equally as challenging to keep a customer. However, many franchisees spend all their time, effort and money on the first part of the equation, only to lose their profit (and possibly their business) by neglecting the second part!
Here's the silver lining: Whatever it costs to capture a customer, it will cost less to keep that customer! Get in the right business, figure out a customer's value, and work on keeping the customer for a lifetime.
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