Work to build customer loyalty… will it have a return? There is little that must be put into play to create a culture of service that manages to generate the desired loyal customers. For this reason, I recommend the manager who takes charge of his organization and sets it in motion with this goal, to sit down before doing his calculations.
What is a loyal customer?
Before calculating what a loyal customer will pay to the company, we must be clear about what we call a loyal customer.
The concept of "loyal customer" is related to the customer's intention to buy from your business whenever a need arises that you can supply with the service you offer. If the client does not consider other options, and goes directly to your company, she is your faithful client. But it does not necessarily have a high recurrence of purchases. It may be a customer who buys twice a year, but feel free to buy from you. That is a loyal customer.
Therefore, a loyal customer does not necessarily mean one who buys with high recurrence. If you want to calculate the return of your loyal customers, you must estimate the frequency in which the need that you supply occurs in the average of your customers.
Fortunately, recurring purchases are not the only effect we see on a loyal customer. His greatest potential is in the recommendations he will make about your brand to his circles of influence. This impact is growing day by day due to the new social tools through which with a single click it is possible to tell hundreds or thousands of contacts that you have been satisfied with a certain business experience.
A study carried out in 2013 by the consulting firm Echo reveals that customers who have a positive service experience tell 15 other people about it. Those people, when they need your service, will inevitably remember their friend's recommendation and, you know what? This well-intentioned comment will have the highest power to influence your decision; much more than any good publicity.
A third effect that we observe in loyal customers is that exit barriers to other options or suppliers are raised. This means that your loyal customer is so happy with what you offer him, that he doesn't even want to consider other alternatives, and this makes him even happy to pay you more, because he values that differential service that you offer him as a plus.
This naturally translates into differentiated prices and / or the possibility of increasing each sale by adding complementary services or products, which naturally is a higher volume of sales.
So…
How to translate customer loyalty into economic return?
We will account for the aforementioned effects, so that you have a calculation base that allows you to put a value on your loyal customers.
Data you will need:
- Average amount of each sale (M) Average number of purchases from a loyal customer - per year (C) Additional customers by word of mouth influence (A) * Price differential for superior service (D)
* A is expressed as the number of additional customers that a loyal customer is able to attract. Of those 15 people you have influenced with your recommendations, how many will actually become customers? A very conservative estimate that you can use is to assume that only 1 of those 15 people will become a real customer.
Let's go to the calculation:
M x C = total annual sales to a loyal customer
M x C x A = annual sales to additional customers attracted by the loyal customer
(M x C) x D = increase in sales due to superior service
Integrating the 3 factors, we have:
Annual return of a loyal customer = M x C x (1 + A) x (1 + D)
Example for a car after-sales service:
M = u $ s 300
C = 6
A = 1
D = 15%
Annual return of a loyal customer = u $ s 300 x 6 x 2 x 1.15 = u $ s 4140 !!!
And this is only for ONE loyal customer!
It is your turn, do your calculations… you will be surprised. The key is to achieve that emotional impact on your clients, and for that you must work inwards, with your people, activating their vocation of service, developing a renewed and ever growing service culture, added to work systems that make it consistent and unstoppable. Are you ready?
