As a small business consultant since 2003, I've worked with hundreds of small business owners and their staffs. Whether my clients sold business to business or to consumers, they seldom thought in terms of the cost of each sale. Further, I don't recall any of them having calculated the lifetime value of their small business' customers.
The reason it is crucial to focus on growing lifetime value is that the cost of developing a new customer is so high. I did some research recently to see what recent studies have been done on the cost of a sales call. Although the figures I found were mostly estimates, they confirmed my experience. Obviously, the cost per sales call depends on a variety of factors. So the estimates ranged from a low of $50 per call to a high of $1,000 per sales call.
Reasons the Cost of a Sale Is so High
- The number of calls per sale - remember that it takes 7 to 12 impressions before someone is ready to buy
- How well qualified the lead is before a sales person gets it
- Percentage of sales per lead, or how many leads to generate a sale
- Entertainment budget, like lunches with prospects
- Cost of marketing materials
- Cost of advertising, direct mail, emails and website to generate leads
- Tradeshow costs
- Salary of sales person
- Salary of a subject matter expert (SME) involved in the call(s)
- Wages of inside sales support
- Labor burden on your payroll (taxes, benefits, breaks, vacations, etc.)
- Time invested researching
- Time invested preparing for the sales call
- Travel time
- Time invested preparing proposals, quotes and follow up
In retail sales the costs are obviously much less. However, the value of each sale typically is far less.
Regardless of whether your sales are retail, business to consumer or business to business, the cost per new customer is so high that the more sales you can make to the same customer, the lower your cost of average sale will be. This translates into more profit per customer. The following list gives ways I've seen and used to increase sales over time to customers.
Examples of Ways to Increase Customers' Lifetime Values
- Broaden products they buy from you
- Service contracts
- Insurance against loss or damage (like cell phones)
- Software support contracts
- Membership sites
- Subscriptions, like the book of the month club, the record club, or Amazon's Kindle Prime membership lending library
- Website hosting where customers pay monthly for your service
- Scheduled replenishment product orders (common with health food supplements and some beauty care products)
- Sell related affiliate products
- Sell bundled packages (like gift packs with coffee, cookies, biscotti, and coffee flavors)
- Additional, more expensive but related information product they can get at a discount for buying now with their first purchase
The good news is that customers hate change. Once they find products and services they like, they will continue to buy from you for years.
While some of these ideas obviously have been obsoleted by technology, they all work for someone today. The point is to use one or more ideas that fit what your small business does. When you find a way to increase the average lifetime value of your customers, you will enjoy greater profits for years to come.
More from this contributor:
First Person: To Increase Sales, Grow Your Customers' Lifetime Value
First Person: Customer Service and Your Customers' Lifetime Value
First Person: How to Stop Driving Up Payroll Hours
- Small Businesses