Editor’s note: four or five years ago, it was trendy to talk about how attracting qualified leads was like wooing a potential date. (We talked a lot about not asking for a phone number before you’d been introduced.) In 2016, there’s more attention on the entire customer lifecycle, with emphasis on deepening your customer relationships for retention, loyalty, and advocacy. Amy Duchene revisits the original analogy with this in mind.
It’s wedding season. You may have received invitations to friend or family weddings. Me, too. And all of this has got me thinking: There’s a lot of similarity between business and marriage.
Hear me out.
A lot of brides (and grooms) focus on The Big Day. All the planning, all the coordination, all the logistics, all the time (and all that money) go into a one-time event that is seen as a singular achievement.
Sales people have a similar pattern: Nurturing the account, doing the demo, negotiating the terms, all lead up to a singular achievement: signing the deal. And in many offices, there’s a celebration (Act-On reps bang a gong).
But what each party may be forgetting is that The Big Day (or The Big Deal) does not end as soon as the “I Dos” are said and the covenant is signed. That’s actually just the beginning.
The Sales Cycle vs. Looking for a Mate
Think about your sales cycle. It probably looks a little something like this, depending on your muse:
- Scouting for and attracting new customers (prospecting, social media, referrals)
- Capturing your prospect’s information so you can tailor a personalized connection
- Nurturing those relationships
- Analyzing customer needs, coming up with a solution and sealing the deal
- Fulfillment (your service or product)
- Continued customer communication and relationship-building
Most of these factors focus on the pre-buying process, which is where salespeople spend most of their time.
Look the list over again – this time through a romantic lens. This looks an awful lot like love relationships, doesn’t it?
- Scouting for new customers (prospecting, leads, referrals) – i.e. finding someone (or several) to date
- Capturing your prospect’s information – e.g., getting their information (phone number, etc.) so you can connect
- Nurturing those relationships – courting, wooing, going out for meals, hanging out, texting … whatever you do, this is all about getting to know the person and beginning to make it personal
- Analyzing the need and coming up with a solution – Maybe he or she often eats dinner alone, and wants some company to try a new Thai restaurant. If you like that type of food, you might be a match – at least for that night. Maybe he or she needs a date for a distant cousin’s wedding, or wants to learn to kayak, or wants to go to Seattle for the weekend. Maybe you can fill those shoes, too.Eventually, if you are lucky, this moves beyond being someone to hang out with on a Saturday night, to being THE ONE you want to spend your time with – and they feel the same. When you formally agree on this, you’re sealing the deal.
- Fulfillment – In sales speak, this is the delivery of the product or service that you sold. In relationships, you’re fulfilling the promise to commit. And you are there. That’s fulfillment.
The truth is, we can learn a lot from our personal relationships and apply those findings to business. After all, sales is a people business … and it’s all about the quality of those relationships.
First Come Loves, Then Comes Marriage…
So, let’s say you have a heart match – or, in the sales world, a prospect you want to sign because you believe it will be good for both parties. Now it’s time to make it official. You start to plan the wedding or you set the contracting machinery in motion. At the culmination, a contract is presented and signatures sought. If all goes well, both parties sign, and a relationship has taken a permanent step.
Is that it, though? What happens on the next Monday morning?
In business, like in marriage, the obvious answer is, of course that’s not the final step. There are many, many more steps – and days – to come. A key (and too often overlooked) part of the sales cycle comes after you’ve put a ring on it. I’m referring to the focus needed on the long-term relationship – the marriage, as it were. If you don’t nurture that relationship, it could fail.
In It for the Long Haul – What is Customer Lifetime Value?
Marriage partners will go through a lot together: fun trips, buying cars, having children, moving to a new town, pesky in-laws, illnesses and accidents, triumphs and losses. Business relationships often have a similar path. Your customer goes through changes: they flourish with your product, and then the business falters, and then it recovers. Or they get purchased by a larger company. Or they bring out a new product line, or expand to sell in another country. You go through changes: You might launch a new feature that does not work for your biggest customer in California. The economic environment changes: a government regulation that affects half your customers is revised and you and your customers both have to adapt. In both marriage and in business, it helps to be flexible.
Customer Lifetime Value (CLV)
Now we get to the place where our analogy falters. We can’t quantify most of the benefits we get from a marriage. But you can quantify the value your customers bring to your company year over year.
“Customer lifetime value” is a quantifiable metric to help you assess how much value your company can realize over the entire duration of your relationship with your customer. This number, in turn, helps you understand how much you can spend to acquire and maintain a customer, and still make a profit.
Think about how much a customer spends, and how frequently. Not just what you’ll earn with the initial sale, or even this year – but a projection of the grand total. We’re talking repeat and add-on business here.
If you sign up a customer today, you’re guaranteed that initial purchase value. That might be fabulous, but by itself, that’s a short-term measure. Why settle for that?
Here’s the kicker: if you retain and resell that customer for the next year, two years, even 20, years, you’ll see revenue year over year. Usually at greater net profit each year. Add up that total profit and you’ve got predictive CLV, and a great, meaningful goal to shoot for.
The Cost to Get a New Customer vs. Keeping an Existing One
Let’s get granular for a moment.
When dating, you’ve first got to find your mate, decide you want them, woo them with excellent dates – get to know them – and predispose them to care about you (perhaps through the content of your conversations) before you pop the question. Dating can get expensive. (All those dinners, all those concert tickets. That new hot tub. Your sharp new clothes.) And that’s before you even get to the wedding.
Start to mention the “W” word to vendors around town and you’ll soon find that dresses, cakes, photos, food and party favors cost a whole lot more than you ever anticipated. The average cost of a wedding in 2015, according to The Knot, was over $32,000. Not cheap. So between courtship and marriage, you’ve made a sizeable investment.
Now think about your business. One of the key components of a sales cycle is the cost to get the new customer in the first place. You need to find and attract prospects. Then you court them. If you’ve got a long sales cycle, that probably means lead nurturing and a whole lot of content marketing. All this comes before you get to the negotiation stage and then sign them up.
So, how much does it cost you to acquire a new customer? Consider your promotion and marketing efforts. Prorate your advertising costs, pencil out your teams’ time. Figure out how you account for events and tradeshows. Count up all the expenditures during the courting and sales process (flights, dinners, meetings, demos and presentations, phone calls, movies, tickets to the ball game, etc.). Talk to your finance team to make sure you’re on the same page with them.
This stuff adds up, and quickly, when you scale it across your sales quotas for the month.
This is just one reason why retaining existing customers is so much more profitable than acquiring new ones, making the case all the stronger for paying attention to CLV. A few interesting statistics from SailThru:
- Existing customers are 50% more likely to try new products, and spend 31% more than new customers
- Increasing customer retention by 5% increases profits 25-95%
- It can cost a brand up to 5x as much to get new customers vs. keeping old ones
After the Big Deal, Now What? Nurture Relationships for Pay-Off
So you’ve forked over the cash to throw the Party of a Lifetime and get married, have a partnership celebration, or sign a new customer. Once the party is over and the cake and bubbly consumed, now what?
You move into the next phase – the marriage.
Many of the strategies you use to keep the marriage healthy are the same ones you use to keep the business relationships rolling. You need to nurture them, build satisfaction, and keep them coming back. You need to listen.
Think about it this way: if you don’t spend the time or effort to nurture the relationship – it all goes badly, right? Or, at minimum, you drift apart. Whatever your tried-and-true method to keep your existing customers happy, just do it, and they’re likely to stick around. It may cost you money and time to retain a customer, but it’s less than starting from scratch, and the rewards are much greater.
It also helps prevent what tech investors call ‘sloppy growth,” which is what happens when you over-emphasize converting leads and under-emphasize assessing how much value the customer brings to the business long term. “In other words,” writes Act-On’s Kevin Bobowski on IDG Connect, “quantity over quality.” Smart growth is what you get when you attract and convert – and retain – the high value customers.
When It’s OK to Let Your Eye Wander
One last bit of consideration – and that is knowing when you are in a bad or stagnating relationship. (I’m talking about customers only. I don’t want to be on the hook for giving you bad marriage advice!)
Maybe the relationship has cooled off. Your customer got bought by another company, and the new relationship isn’t so good. Or your customer’s had a lot of turnover, and the new team you’re working with wants a different product or service. It may be time to dump them – or to let them dump you.
In the meantime, you’re still working every day on your lead and demand generation, so you’ve got a steady stream of new customers incoming. Have the Big Day of signing them up, and then move into marriage mode, where the real value lies. After all, lifetime value applies to each and every customer in your proverbial Rolodex. They all need love.
Here’s a Honey-Do List, for Spouses or Marketers:
- Calculate customer metrics for your own business. Here are some questions to ask yourself:
- How much does it cost to find a new customer and get them into your funnel? Include marketing, promotion, advertising, events, sales expenditures, etc.
- How much revenue does a new customer bring in each year?
- What is the average duration a customer is with your company (or, how long you’d like them to be)?
- How much does it cost to keep your customer? Consider company events, training, surveys, marketing communications, and so on.
- Can you upsell your customer? What might it cost to do that?
- Revisit your pricing strategy. If you have a subscription business model, do you sign them up for little to no money up front, knowing they’ll pay repeatedly once they’re in? Do they pay a high premium to join – so they give you a lot of money up front – but then their annual subscription or renewal fee is low? What would happen if you changed your model?
- What’s your retention rate? Is your customer list growing at a higher percentage rate than your churn rate? What does it cost you to lose a customer? What would your net profit look like if you could cut your churn rate?
It’s not all science and hard numbers, of course.
Think about those intangibles – the “feel good” things you can do for your customers, like:
- Treat your customers with kindness and courtesy – be nice
- Don’t cut customers off when they are expressing concerns. You can learn a lot from negative feedback
- Ask for their feedback, and then listen. What direction would they like to see your product develop?
- Close the loop promptly when they have a concern
- Promote them. Retweet their Twitter posts, comment on their Facebook posts
- Remember them. Check in with periodic calls, meetings, or “just because” cards
- Fork over for the occasional random upgrades (such as honoring their tenure with upgrade to the next level of your business, or VIP status at an event)
- Evolve with them as time passes. Learn how their business is changing – and, if it makes sense, make adaptations to your own model along the way
A Lifetime Together
The endgame of any successful partnership – business or spousal – is to make that partnership so happy that you want to stick by each other’s side to the end.
I wish you a lifetime of happiness!
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