- You are looking to increase your market share and need to add on new customers. Are you willing to add on any customer or would you like profitable customers only?
- You are known as an industry leader all these years. Suddenly a competitor emerges out of nowhere and is selling a product that is faster, cheaper and easy to implement than yours. You are on the defensive and you reach out to any potential clients with more free products and services in the hopes of crushing the competition and gaining foothold in the space. It may seem like a good idea today as your numbers will be in black but are you really crushing the competition or designing a path for going out of business? How can you tell?
There are 2 key indicators that you need to be aware of:
- Customer Lifetime Value or (CLV): A leading indicator - CLV is Net Present value of all the revenue generated by customer over the lifetime of the customer's relationship with the company minus any customer acquisition cost. Many of the calculations I have seen, typically do not include the cost associated with serving the customer eg. : Customer Service calls. My suggestion would be to include these costs as well in your calculations.
- Customer Acquisition Cost or (CAC): These are the costs incurred to attract a new customer. They are typically associated with:
i. Inbound Marketing - Dollars spent to attract customers to website, to create content such as blog, white papers
ii. Outbound Marketing- Dollars spent to advertise about the company's products - email campaigns, TV Ads etc.
b. Sales: Salaries of inside sales team or Direct field sales teams associated with the account
c. Discounts: Any discounts or coupons given to get the customer buy the product or service
d. Free services or products: Product or service giveaways to attract customers
Customer Experience programs today are helping companies increase their customer lifetime value by up-selling and cross-selling products to existing customers and identifying ways to retain most profitable customers. If you can identify a potential customer with high CLV, then you can afford to give away products or services for free in return for the customer increasing their share of wallet with your company. If not, is the customer really worth pursuing just because you want to crush competition or increase your market share?