Why a Client's Lifetime Value Changes, Depending on the Month
Sales 101 says that determining the lifetime value certain customers have has to do with how well you initially take care of them and how communicative you are after the fact. But one often overlooked factor has little to do with how well your product, pricing and placement measure up. Believe it or not, the lifetime value of a client can be determined as much by what month they actually become a patron.
Consider our company, National Pen Company, which sells a great deal of specialty-marketing products year round. Certain clients tend to purchase goods at specific times of the year: Accounting firms, for example, buy in the summer when tax season is over and before end-of-year financial reports need to be generated for their clients.
We capture and fulfill their orders and typically see them again the following year. But what if we were able to entice these same firms to send out holiday merchandise, such as specialty cards or calendars branded with their logo, to send to clients? This could be done around September or October, so they could stay top of mind with their own customers and prospects at a time of year when their rivals typically don’t.
This would mean we would not only capture sales earlier in the cycle than normal, but have the potential to significantly enhance the lifetime value of that accounting firm that that would now be buying items twice a year instead of just annually.
The concept sounds simple, but it isn’t followed as frequently as you’d think. That’s because most companies get caught up in the factor of the cost-per-customer acquisition that may be higher "off season." Going back to the accounting firm example, a company like ours will spend the same amount of marketing dollars going after this business line in the fall as we do during tax season, but garner fewer customers for our efforts -- since some prospects won’t adjust their marketing expenditures.
This raises the costs to obtain new clients and thus turns off a lot of interest. However, that’s not the proper math to use, because it fails to take into account the long-term benefits.
Put another way: If an accounting firm customer that our company secures in September or October costs us, say, $10 to obtain, when it would cost only $5 during the normal sales period, the initial conclusion is that the effort is not worth it.
But the exact opposite is true: While the cost to acquire that customer in September is double the normal cost, our company then generates twice as much revenue each year, and likely for a longer period of time during the year than before.
All this is to say that when you look at prospective new client opportunities, generating revenue during months or weeks traditionally thought of as off season may not generate the same short-term level income, but the lifetime value is what matters.
So, be sure to look at that metric first before you decide not to raise your new customer-acquisition costs.