Having spent much of my business career in the payment processing / merchant services industry, I would review the monthly credit card revenue of my clients that covered most every industry. In my business, we worked on “basis points” (One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form) which equated to the relatively nominal gross profits on a monthly basis. However, what was more important was the lifetime value for each of our clients.
Although I met and spoke with thousands of business owners during my career, I typically wasn't envious of anyone particular industry where I wish I would change careers to a different business. Whether credit card processing, the banking industry, the lending business – it doesn't matter what the industry – but never forget the adage “the lifetime value of your customer.”
Let me use a camping analogy – just recently, my brother enrolled his older son for sleep away camp that has a hefty tuition of $8,000 for summer bliss for him.
As the camp owner and I completed his Visa/MC/Amex paperwork, we started speaking about the Lifetime Value metric for his business. He said proudly, I just made a $192,000 sale yesterday! I said, congratulations, but I don't understand given that your tuition is $8,000.
He explained – in addition to my nephew, there are 2 younger children who will most definitely follow in my nephew's footsteps (currently age 6 and 4). Assuming a 0% “attrition” in that the majority of his campers have a positive experience and continue to come back until the age of 16 -- and the majority of siblings will follow when they hit the age of 8. Thus, the camp owner had just sold 3 children -- 24 years of summer camp tuition. $192,000 sale!!
Wow – what a cool way of looking at his sales process and the lifetime value of his clientele.
Whether we are in the cash advance business, camping or a myriad of other industries, never forget this metric. Once you can understand this valuable business metric, you can develop your acquisition cost for acquiring a new customer plus the power of referrals.
Think about this logic when evaluating the lifetime value for your business. The value of the repeat customer. The value of a positive reference. Embrace and reward your existing customers as they will provide the future success for your organization.