The Lifetime Value of a Customer Submitted By: Walter Gordy

Far too many businesses focus only on making the initial sale, and forget about what comes after that; they do not consider the longer-term relationship with their customer, and hence they cannot leverage the potential of each sales encounter. Customer satisfaction is vital to customer retention, and customer retention is vital for long-term success of any business enterprise. There are several methods that can be employed to build up long-term customer relationships, such as driving your back end sales and building up a continuity-based business.
Continuity Models: Continuity business models are one of the most straightforward ways of developing long lasting customers, who generate profits year to year. A continuity model is best explained by an example: book clubs are one the greatest exponents of the continuity model. They offer an initial subscription to their service, for a heavy discount, and once that trial period has ended, at set periods thereafter the customer is sent new books and billed the normal amount. This then generates huge ongoing sales, as most people do not cancel their subscription if it is reasonably priced. When done correctly, this model can have a fantastic return on very limited investment.
However, once you have got these customers, good relationship management can generate even more sales. Selling to your existing customer base is generically known as back end selling. There are two types of back end selling that can be used either individually or in concert with each other.
Cross Selling is one of the most effective forms of back end selling. In essence, cross selling is trying to sell your existing customers an associated product, either at the same time as their initial purchase, or later on. For example, when people purchase auto-insurance, they are almost always offered breakdown assistance and legal cover at the time of their purchase. The success rate for cross selling is very high, as it offers convenience to your customers, and they have already made the decision to purchase from you.
Up Selling is also a very effective method of back end selling. Up selling is the process by which you entice an existing customer to buy the next step up in the product range, for a small additional fee. The classic example of this is being asked whether you would like to ‘go large’ or would ‘like fries with you meal’ in fast food restaurant. Again, this has a very high success rate, as customers have already decided to purchase from you. Up selling works particularly well with subscription services, as it is much easier to sell a small monthly increase than a large one-time step up in cost.
Combination selling is an amalgam of the two above points. The very best sales methods there are use both cross and up selling. The key advantage to this is that you will most likely experience a surge in sales, but better than that, you will get an even larger surge in profits.
This is because the cost of doing the transaction is substantially diluted or reduced if you can make one transaction equal two or three sales. In effect, you are making additional sales without the expense and effort of having to attract the customers to your business, and thus driving your profit margins up.
Of course, leveraging your database of existing customers who trust in you, your business and the relationship that exists between you, does rely on one or two basic points. In order for your customers to consider repurchasing from you, or to enhance their purchase, they must be entirely satisfied with their initial experience with you. This goes back to the very first sentence of this article – do not get so hung up on closing the sale you forget about the longer-term implications. If you build up a long-term business model, then you will leverage each sales encounter and build an enduring business legacy.