Can you afford your customers? That’s a great question.
Another great question: How much are you willing to spend to get your customers?
An even better question: How much are your competitors willing to spend to get your customer? Typically, whoever spends the most or is willing to go the furthest wins the game.
Look at the Numbers
I’ve heard the lifetime value of a customer set as high as $75,000. If you think your customer will return $75,000 to your company over their lifetime then you must ask, “What would I pay for $75,000 in gross sales?” However, that can be dangerous. First you need to determine what “lifetime” means. Is it the customer’s lifetime, the customer’s home’s lifetime, or your company’s lifetime? You also need to determine what the lifetime sales goal is. Is it $75,000 in gross sales, or is it 20 percent net pre-tax profit on $75,000 gross sales, which equals $15,000?
Here’s another catch. Let’s say you calculate the net profit at $15,000. Are you now ready to determine what you would pay to get that customer’s business?
Let’s say you decide to spend 8 percent of gross sales on this whale of an opportunity, so you allocate 8 percent of $75,000 ($6,000) to attract this customer. In my opinion you should easily be able to attract this customer with a marketing budget of $6,000.
Do not let this project fall off of your desk. Do it, track it, test it, tweak it. Then repeat it in another neighborhood.
Let’s say you spend the $6,000 to acquire this customer, and the first sale turns out to be only a demand service call of $350 plus a service agreement of $289. So, we just spent $6,000 to get a first sale of $639. Now if your service agreement is meant to keep their systems running for a long time, you are out $5,361.00 for a couple of years.
Do you see how easy it is to spend your way out of business when you think you are spending for growth?
You say “Rodney, your numbers are crazy. They make no sense.” And you would be correct, but have you ever spent money to get money you never got?
One more thing about the lifetime value of a customer. Let’s say you spent the $6,000 to get the customer’s business. Just when you think they are going to do business with you they see a TV ad by your competitor offering a half-price sale this month only. They make the call, the high-pressure salesman with the half-off coupon stops by, and the rest is history. In the end, you spent the advertising and marketing dollars, but, at the moment of truth, you got beat out. If you set the lifetime value at, say, 15 years, that gives your competitors 15 years to break you with the one-time fabulous special offer. You can’t pay for loyalty. You must earn it every day.
Enough foolishness, let’s get real. Set the lifetime value of a customer at 10 years. That is a reasonable time because most of you will be in business for another 10 years, and if your customers stay loyal for 10 years, that’s good.
By the way, have you noticed that your primo, top-of-the-line, love-you-so-much customers seem to lose a little shine after they’ve bought everything you have? You know that guy that actually bought a $25,000 HVAC system, what happened a few years later when you showed him his air ducts leak 38 percent? The shine fades because he thought that spending all that money with you 5 years ago was all he needed. Wax on, wax off.
Take a Hyper-Targeted Approach
My extreme examples are meant to just get the thought process going. But the point is your competitors spend a lot of money, but you never know just exactly when they are going to do it. How often do you wonder how they keep creeping into your market area with their guerrilla marketing?
You can save 75 percent of your marketing budget for attaining new customers with this method. Quit going after the customer you have and quit spending money trying to get him to buy more. Instead, go after his neighbor. Get a map of your marketing area and put it on a wall. Now start putting pins on the map everywhere you had a good experience with a customer. A good experience means they like to do business with you, they seem loyal to you, and they can afford your higher-priced products. Keep pinning the map until you start to see clusters of pins and drive those areas. Are these your customers? Would you be happy to triple your business in these areas? If so, then that is a target.
Let me caution you that the area may be a high-end golf course, but it’s just as likely to be middle class, hard-working people and two-income houses. Also make sure the majority of the homes have two or more systems. They can afford to be loyal to you. More on that later but you need loyalty to pull this off.
Now that you have your area, plan a target campaign to get the majority of the business in those neighborhoods. Focus on streets, not zip codes. Zip codes are way too broad. Instead, focus on streets and neighborhoods.
What works on streets and neighborhoods?
· Your trucks. They are well-marked and easily recognizable.
· Billboards targeted for specific areas.
· Newsletters targeted to these areas.
· Sponsoring parks, ball fields, etc., in the neighborhood.
· Yard signs.
· Shoe-leather campaigns. Walk the neighborhood on Saturdays and give away magnets, stickers, and a free bottle of your favorite barbecue sauce to every door.
· Give free plungers with your embossed labels on them.
· Telephone drives with special offers, not junk offers like they hear every day, but special, creative offers.
Add ideas as you get them.
It’s important to establish a dedicated timeframe to this project. Exactly how long will you work to get 50 percent of this neighborhood buying from you? I’ll tell you how long — as long as it takes. Do not let this project fall off of your desk. Do it, track it, test it, tweak it. Then repeat it in another neighborhood.
Can you afford your customer? Yes, but you cannot afford to throw thousands of dollars at a customer hoping to get it back over 15 years. Get it back today.
Who gets the customer? Whoever spends the most to get them. But one thing your competitor is not spending is time. Spend time, effort, and creative thinking to acquire your customer and send your competitors packing.
Pricing enthusiast Rodney Koop is the founder and CEO of The New Flat Rate, a home service menu-selling system designed to put profit directly into the hands of plumbing, electrical, and HVAC contractors.