Maximize the Value of your Customers

by John Almberg, Identry LLC, October 2006

In previous columns, we've looked at how to convert online searchers into visitors, visitors into prospects, and prospects into customers. This month, we'll focus on the final and most important step – maximizing the value of your online customers.

By customers, I don't mean people who buy from you once. I'm talking about repeat buyers – collectors who depend on your expertise and services, over time, to fulfill their collecting goals.

Such collectors tend to spend a certain amount every year on their collections. They are going to spend that money somewhere. Your goal is to get as large a share as possible.

“Can you give me an example?” asked my client, Jill, when we first discussed this topic.

Jack is an avid collector of graded airmail stamps. He doesn't have a formal collecting budget, but on average he spends about $2,000 per year on his hobby.

From looking at her records, Jill can see that Jack has spent an average of $400 with her in each of the last three years. That gives her about 20% of Jack's collecting spend. If she could increase her share to 40%, that would double the value that Jack contributes to her business.

If she could double her share of all her repeat customers, she would double her annual sales. All without attracting any new customers!

“Sounds great!” said Jill. “But how can I do that?”

Easy: with a systematic approach.

Step 1: Baseline your numbers

The first step is to measure how you are doing before you start. That way, you can set realistic goals and measure your progress.

When I asked Jill the average value of her repeat customers, she just threw up her hands. “There is no average!” she said. “All my customers are different!”

That's true for every dealer, but the average value of your customers is easy to calculate:

  • Make a list of all your customers who have bought 2 or more times in the last year. The number of customers on that list is your “Number of active, repeat customers”.
  • Total up all the purchase made by just those customers over the last year, to get your “Total repeat sales”
  • Divide sales by customers.

For example, say Jill had 100 active, repeat customers and, in total, they purchased $24,000 worth of stamps. In that case:

Average Value per repeat Customer = $24,000/100, or $240. (actually, it's more complicated that this, but it's a good place to start.)

Step 2: Generate more purchases

The first way to increase customer value is to generate more frequent purchases. Here are some ideas:

  • Be easy to do business with – make your website useful, don't waste time, make everything obvious
  • Keep your site simple – simple to search, browse, check out, return, get help, and find information
  • Encourage personal contact – big businesses like Amazon can't have personal relationships with their millions of customers. You won't have that problem, and your personal relationships with customers is your biggest competitive advantage.
  • Follow up every purchase – thank your customer, then ask about his collecting needs and interests.
  • Create a database of customer interests – and then use that information to serve your customers better and better
  • Create a loyalty program – motivate and reward customers who buy more and more from you
  • Fill orders fast and correctly – and follow up to make sure each customer is 100% satisfied
  • Gather up abandoned shopping carts – when you know who's cart it was, a simple email can often close the sale
  • Provide free 'training' about your site's advanced services and about stamp collecting, itself. Not only will this training help establish your position as an expert, but it will continually expand the collecting interests of your customers.

If this sounds like a lot of work, don't worry! Most of these ideas can be automated to save you time and effort.

Step 3: Increase the amount of each purchase

The six most profitable words in history are “Do you want fries with that?”. That simple question has generated billions of dollars in incremental sales for McDonalds. You can do the same for your online business:

  • Use your database of customer interests to show them more of what they want as they tour your site
  • On the way to check out, make it easy to add related items to their cart
  • Follow up all orders with offers like “Add this item to your order, and we'll waive the shipping charge!”

Again, all these approaches can be automated and made part of your online business.

Step 3: Measure your results!

To know how you're doing, you need to measure your results! Measure each change so you know what's working, and what's not.

Your objective is to increase the average value of your customer. So set a goal, keep improving your site and service, and re-measure your performance every 3 months or so, until you meet your goal!

Next month, we'll start looking at some of the reasons why websites flop.

Meanwhile, please send any questions or comments to john@identry.com, or visit us at www.identry.com. And have a great month Selling on the Web!