Grow Loyal Customers with White Swan Strategy
(CLV)—It’s NOT Magic!
Desiree
Grace
Some people
think loyal customers are like magical unicorns—rare, and subject to luck,
alignment of the planets, and other uncontrollable nonsense—the stuff of fairy
tales. I would argue that loyal customers are WHITE SWANS. White Swans are highly
predictable events that can be easily anticipated, and their size and
importance can be easily estimated. You DO have control, if you know what to do.
The choice is yours.
Customer
Lifetime Value defined
Customer
Lifetime Value (CLV) is key to customer retention and long-term profitability. You can measure this easily by multiplying
customer annual revenue by customer lifespan. Then, subtract any acquisition
costs for year one and retention or servicing costs, like rebates, from the
annual number, and presto! You have customer lifetime value.
Let’s walk
through an example: Cobalt Electric buys $10,000 per month per year from Sterling
Manufacturing, with a year-end buy of $5,000 to make their rebate goal. The
rebate costs 5%, $6,250. Assuming there were no acquisition costs and minimal
servicing costs, Cobalt’s annual value to Sterling is $118,750. Assuming Cobalt
has been a steady customer for over 20 years, that pushes their CLV to $2.375 million.
Not great, but if they are low maintenance and pay their bills on time, it is
not bad. A more important challenge is how Sterling can grow Cobalt in the
upcoming sales cycle.
Segment your customers
Not all
customers have the potential to increase their lifetime value, but most do. To
maximize your efforts, focus on those with the greatest growth potential. Look
for customers in stable or high-growth market segments, have strong
financial stability or are experiencing growth, and whose needs align well with
your offerings. While you may want to include additional criteria in your
segmentation, the three mentioned above are a solid starting point.
Plan to grow
The next seven
steps are not only magic, but mandatory. The number 7 symbolizes completion,
perfection, and order, so perfect your plan to grow Customer Lifetime Value.
Customer intimacy
You need to
know and understand this customer. Develop a detailed customer profile.
Research their industry, their history, fiscal year, financials, and their
people, including a CEO profile. Who do you know, and who should you know? What
other hot buttons matter to this customer? Safety, innovation, acquisitions?
You need to know. Lucky you, most of this is available if you are willing to
spend time at your laptop researching. Your internal company records are also a
good resource.
Go broader with your customer
Gap Analysis will help you identify areas of opportunity. Selling cable ties
but not tools and mounts? That’s two easy targets. If you want to increase
customer lifetime value, add product categories to the mix that they buy from
you consistently.
Get deeper with your customer
How can you increase stock on the shelves—Your Inventory? Do they need a
cross-reference, a stock rotation, or a recommended stock list for mutual
customers? Whatever it is, find out, and give them what they want, within
reason, of course.
Stay connected
I appreciate a good,
old-fashioned switching cost. A switching cost is the cost to stop doing
business with you. Consider your Netflix subscription. You autopay each month
and must make an effort to cancel the subscription. You, too, can make it
difficult for customers to disconnect from you. Instead of golden handcuffs,
explore more modern methods. Technology sharing, such as visibility into your
inventory and inventory management, is essential, as is the ability to transfer
funds between bank accounts. Those mutually beneficial tools complicate it for
a competitor to sneak in, as those transactions flow seamlessly between the
organizations.
Peer-to-peer
mapping is another valuable idea. Your CFO has a relationship with the customer’s
CFO, and your shipping lead has a relationship with their receiving lead.
Relationships are mapped out and intentionally nurtured. You want multiple
relationships within the account to future-proof your connection. We all know
retirements and job changes occur, even layoffs. Ensure you have multiple
relationships at various levels within your best customers.
Trust
This is tough for the cynics out there, but you need to commit. This includes information
sharing, such as your revenue goals. This will lead to mutual forecasting and
joint target setting. Once you start being transparent, you’ll get that in
return. And while that bond is ephemeral, it’s strong, like a silken thread. You
will build a partnership.
Customization
matters
When discussing our customer profile, it's important to demonstrate a deep
understanding of their needs. You’ve taken the time to learn their operating
rhythms, which allows you to offer customized incentives that reward positive
behaviors and align with their overall strategy and goals. In Norse mythology,
a golden ring can multiply itself. Similarly, a well-designed and tailored
incentive can create significant benefits.
Tracking
No good relationship of
value succeeds by being taken for granted. Use your CRM and learn your
customers’ patterns—how often they order, when they order, and what their typical
order size is. You can then identify any deviations from patterns and
course-correct potential problems while they are still small. Other indicators
could include contact patterns, quote/RFQ activity, opportunity tracking, etc.
Keep an eye on these and investigate to determine if any trolls are trying to
erode your position. If so, take action immediately.
Total
Company Effort
You won’t succeed alone. Every successful hero needs a team to
help. This includes taking the initiative to create and maintain Customer
Lifetime Value (CLV). Your warehouse, accounting, marketing, executives, and
inside sales teams all play a crucial role in supporting the outside sales
team. Unlike the unpredictable Black Swan, the White Swan represents what is
predictable and controllable. Take charge and focus on building Customer
Lifetime Value.
Consulting.
She builds brands, grows revenue, and motivates teams, facilitates strategy and
execution, and offers special expertise in helping international companies
enter the North American market. Experience with Fortune 100 companies,
private start-ups, and mid-market businesses enables Desiree to help a variety
of B2B organizations improve market share, revenue, and profits. She is a
sought-after speaker for professional development, sales leadership, industry
trends, and team leadership and motivation. You can connect with her at www.linkedin.com/in/desireecgrace.
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