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4 Steps to Building Lifetime Value From Expensive First-Time Customers

4 Steps to Building Lifetime Value From Expensive First-Time Customers
Image credit: CameliaTWU | Flickr

A well-known (and widely bemoaned) fact of direct mail is that it’s expensive.

Does that scare you away? I hope not, because you should already know this. A direct mail campaign can cost your company a lot of money, but only if you don’t do it correctly.

I know how it can seem when you’re not familiar with the process. If your product only sells for $19.95, and it costs you over $50.00 to acquire each new buyer, how are you ever supposed to make any money?

The answer is pretty simple, and it comes from clearing up a misunderstanding. You see, you need to look at a lot more than that first purchase in determining the actual value of the mailing to your business.

Think about your own buying habits. How many times have you bought the same brand of toothpaste? A book from the same publisher? Eaten at your favorite restaurant?

It may have been a “Free Appetizer!” coupon that drew you in to that restaurant, but I’ll bet you’ve spent a lot more than the cost of that $7.95 appetizer you got for free -- or the additional $20 you spent on the rest of the meal. You were worth more than $7.95 to that restaurant because they intended to turn you into a repeat customer.

Related: Becoming Indispensable to Your Customers

You need to think the same way about your own customers. When you look at how much a customer is worth, you need to focus on more than a single purchase. You need to calculate their lifetime value (LTV). This number is the sum of all the purchases a customer will make over the lifetime of his or her relationship with you.

What is lifetime value?

I’ve worked with a lot of gym owners. They spend thousands of dollars on direct mail to acquire new customers. One of the most common offers is a highly discounted first month, say, $1. A lot of people are willing to join a gym for a buck! But do you think my clients could ever see a positive return on investment if they calculated their earnings based on that dollar?

No way!

So we look closer. Most gyms have contracts that keep members paying for a certain number of months. Plus, that $1 fee is only good for the first month. After that, the membership cost goes up to its regular rate. Let’s say it goes up to $40 a month and the contract is for a year. Instead of being worth a single dollar, one customer is now worth $441. Now the cost of acquiring that customer looks like a much better investment, doesn’t it!

But maybe you’re in the retail business. You don’t have subscribers or monthly fees. What do you do to increase the value of each customer?

A great way to increase your customers’ lifetime value is to encourage them to purchase multiple products. If you’re selling training courses, for example, maybe you sell a beginner, intermediate and advanced version. Your direct mail campaign is for the beginner course, but you can ultimately sell those same customers all three versions, therefore increasing their lifetime value.

To do that, you need a very good sales funnel. We also call this a customer retention path. It’s exactly what it sounds like: Retain your customers past the first sale, thereby improving on your initial investment. But it’s not easy to convince people to keep buying from you. To increase your LTV as much as possible, you need to create a customer retention path that actually works. Let’s look at how this is done.

1. Start with the widest appeal.

One of the reasons we call this a “sales funnel” is that the funnel makes for great imagery. A funnel is wider at the top (where all prospects start) and gradually becomes smaller (as fewer prospects remain). The first item in your sales funnel should be the one that appeals to the widest range of people. You still want to make sure you only send direct mail to qualified and targeted prospects, but you want to attract as many of those buyers as possible.

Using the above example of selling courses, the course with the widest appeal would be the beginner course. This could be marketed to anyone who has even a casual interest in your topic. This product should have an attractive price for a beginner as well. Those who are just “testing the waters” don’t want to empty their wallets for your product.

Related: 5 Ways To Get Prospective Customers to Choose You

2. Provide great customer support from the start.

As soon as you sell that first product, you need to provide outstanding customer support. This will help to validate your customers’ purchases, ensure repeat purchases and even encourage customers to recommend you to others (a great way to increase your customers’ LTV is to have them bring you even more business).

Customer support can take many forms and it’s really up to you how you want to show your appreciation. Obviously, if there are any problems with an order, fix the problem quickly and gracefully. But if there aren’t any problems, you might consider sending a small follow-up mailing as a thank you.

3. Customize your backend offers to each customer.

You don’t have to literally send unique letters to every existing customer, but any good copywriter knows that you want your customers to feel like you’re talking directly to them. So don’t just send a letter listing all the other products you offer. When the time comes, look at the products customers have bought and offer them similar products that they will enjoy. Focus on the benefits to your customers and let them know how their next purchase will augment their benefits from the previous one.

For example, you can look at your customers who have only purchased your beginner course. To them, you would market only the intermediate course -- they’re not ready for the advanced one yet! You can tell them how the intermediate course builds seamlessly on the beginner course and let them know it’s practically a necessity now that they’ve begun.

This is a simple example, but the point is that the more carefully you can target your customers on the backend, the more likely they are to buy from you again.

4. Never give up on a customer.

There are a lot of reasons people don’t buy again right away. Just because you sent one new offer to old customers and they didn’t respond does NOT mean they are no longer interested. Maybe they were tight on money at that time, maybe they hadn’t had a chance to try your first product yet, or maybe they were just busy and didn’t get around to reading your letter.

It doesn’t matter. Just keep in mind that while your most recent customers are more likely to buy again, you shouldn’t discount your old customers by any means. Keep sending them personalized offers and you may just catch them at the right time.

A customer retention path is key to maximizing your profits. By increasing each customer’s lifetime value, you can ensure that your direct mail efforts are as profitable as possible. Your customer retention path doesn’t have to be complicated. As long as you follow the four steps outlined in this article, you’ll be well on your way.

Related: 8 Online-Marketing Terms Business Owners Must Know