The Lifetime Value of a Customer
Today, a story. This is a blog after all…
Last night I spent about 20 minutes on the phone with someone in another country to make a sale plus another 40 minutes of followup afterwards. Here is what happened:
Someone came to a site where I am a minority partner and filled out the form to get the service in question. But she didn’t complete the payment process at PayPal. This has happened a number of times lately so I was very interested in getting the sale. After an exchange of emails where the woman mentioned the technical problems of reaching her on the phone I called her anyway because I doubted from experience that I could get the sale via email. I got lucky and reached her.
After a pleasant exchange she agreed to give me her credit card information over the phone. She has had lots of problems with PayPal in the past and couldn’t pay now because her email addresses were already registered in PayPal from past purchases. Which is weird but apparently true.
Again from experience I knew that things can go wrong during the payment process even if I do it, so I kept her on the line and filled out all the information using a new email address. Everything worked out and I destroyed her credit card info.
My reward? $67, of which I get about 1/3. Whoopie.
Why did I do it? Because I will do almost anything to get a new customer, especially for a new business like this one. The lifetime value of this nice lady is probably going to be a lot more than $67, as she will probably renew the service when her membership expires in a year. She may even upgrade to a better service. Or buy something else we have to offer.
Shockingly, most web sites neglect the fact that a customer can be sold to more than once. Otherwise they wouldn’t sell ads, which is basically pushing potential customers off of the site to another site where they will become lifetime customers. Dumb, huh? In fact, just about every successful business relies on repeat customers to survive. How long would McDonalds be around if every customer only bought one burger one time? Not long.
Online people forget this critical lesson. Many such sites even succeed, and succeed big, but eventually their revenues will start to go down and down, and there is seemingly no way to stop the downward drift. That is becuase they never built a business with a successful back end that keeps making more money from existing customers indefinitely. By focussing only on the front end they constantly need new traffic to get by, and when the competition improves or the nature of the ‘Net changes (read: Web 2.0) they lose traffic and revenues. And there is nothing they can do about it.
The lesson? Get as many customers as you can. But capture the email addresses of potential customers and stay in touch with them and your past purchasers until they buy again. And again.
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