Speaking with owners, one of the interesting things is how few understand the concept of “Lifetime Value of a Customer” and so base business decisions on short-term thinking, to the cost of the business.
Take a hypothetical example of a supermarket where the average transaction value is R500, and a typical customer buys twice a week. If there is a dispute with that customer over something they’ve purchased, and the response from the store manager is negative, it’s not just a R500 transaction that’s at stake but, potentially, a lost customer who could be worth more than R500K to that store over the next 10 years (500 x 2 x 52 x 10) – and that’s before taking inflation, etc., into account!
Yes, you can refine this by looking at profit contribution per customer – and you should – but this gets quite specific to the types of products different customer profiles buy, the costs to provide those products, and so on, so a high-level revenue base is a great place to start.
I’ve walked out of famous chef’s newly opened restaurant before even sitting down as the staff were so disinterested in customers, and I’ve never been back. Conversely, I’ve followed my favourite chef and his team through changes of restaurant for over 15 years – so imagine what the first chef has lost, just in my custom (and there will be many more, like me, who will avoid it).
So, remember to always look past the current transaction value – give your customers a great experience and they’ll stay with you even when you do make a mistake occasionally. The value of loyal customers is enormous!