By Patrick Whelan, President, Great Reach Communications, Inc.
There’s been a lot of buzz recently regarding the Life Time Value (LTV) of customers, the benefits of Customer Relationship management (CRM), and how they can affect your business. Without going into detail (there is a wealth of information on the Internet), a few points are worth noting.
The fundamental reason for this growing interest in LTV and CRM is simple. It is not uncommon for companies to lose from 20-50% of revenue each year from customer defections (1). Customer defections are measurable, and they affect us all. For a long time, many companies chose to ignore the problem. The solution to customer losses was simply to work to acquire a greater number of new customers. Companies tried to outrun the problem rather than confront it, and before we knew it, something was gaining on them.
Today, thanks to advancements in data collection and integration (among other things), we know that dollar for dollar, investments in customer retention are five times more profitable than investments in customer acquisition. We’ve learned from LTV data that not all customers are equal, and therefore shouldn’t be treated as such. We understand the need to identify the different value potentials of every customer and invest our resources accordingly.
With an understanding of the basic tenets of CRM and LTV, you can create and implement strategic programs aimed at enhancing customer relationships and decreasing customer defections. If you haven’t already, take a step back from some of your customer acquisition efforts and focus resources into client retention. If what they say is true (and it is), it’s an investment that will pay big dividends.