If you are an enlightened entrepreneur and you don’t know what LCV, listen up, because this will have a BIG impact on your business. LCV, or Lifetime Client Value, is the calculation of the total dollar value an individual client has contributed to your business over the life of your relationship with that individual/organization.
As an example, let us say Billy Bob does $100 in business with company XYZ every month. Simple math tells us that Billy Bob is worth $1,200 per year to company XYZ ($100 per month x 12 months). If Billy Bob has done business with company XYZ for 10 years, Billy Bob’s LCV is $12,000 ($1,200 per year x 10 years).
For a real life example, let us assume Billy Bob is really me (Adam Witty), and company XYZ is T-Mobile.
In 1999 I became a customer of SunCom, a regional wireless carrier. Through an acquisition I am now a customer of T-Mobile. In rough averages, I have spent about $100 per month for cellular service for the past 10 years. SO, my Lifetime Client Value to T-Mobile/SunCom is approximately $12,000.
If you are an entrepreneur or business owner, the TRUE story I am about to share with you will make you want to cry. If you work for a big, dumb, company you will see this as merely “par for the course.”
A few weeks back I ordered a new cellular telephone from T-Mobile. I had been resisting this day for a very long time. When it comes to cell phones I am somewhat of a luddite. I am anti-technology in this situation. I don’t want anything fancy. I want simple and efficient. I don’t need a camera phone. I don’t need (or want) e-mail capability. Ten buttons (one for each number) is about all I want. With the abovementioned criteria I purchased the phone that they typically give away for free with a 2 year service agreement for $40.
The phone was delivered a few days later. It sat in the box on my desk for about a week. I finally got around to opening the box. I struggled for a week to navigate the new device. After 7 days of absolute anguish, I made a decision. I would return the phone and simply purchase a re-furbished version of my old phone.
I called T-Mobile to inform them that I desired to return the phone for a $40 credit toward my next bill. The customer service rep. informed me that T-Mobile had a 14 day “change of heart” clause for this very reason where customers could return equipment with no hassles or questions asked. Great news I thought. Well, actually not, because I was calling exactly 15 days after my purchase. I was one day too late.
To me, this seemed a bit unreasonable. I asked to speak with a supervisor. The customer service rep. routed my call to a “senior manager,” though I was skeptical as to how “senior” the position was as it sounded like I was at a senior manager convention – I could hear hundreds of other senior managers in the background talking with other customers like me.
When the senior manager greeted me, she asked “how are you.” I replied, “not so good.” She said “my job is to fix that.” With that response alone, I saw a glimmer of hope. When I explained my predicament, I could hear her jumping out of her skin, she was ready to save the day. “Great news Mr. Witty, you ordered your phone 15 days ago, but it took 2 days for shipping and handling, so as long as you mail your phone back to us tomorrow we can give you a full refund!!!”
While that sure sounded like good news to her, it was hardly good news to me. I replied that wouldn’t help me much because I was leaving for a business trip to Detroit the next morning at 6am. Hoping to have solved all of my problems, she assured me that there would be a post office at the airport where I could drop off the phone and have the return package postmarked within the 14 day period.
I thought to myself “GREAT, just what I want to do when I am running to catch my flight, looking for a post office so I can mail my phone back to T-Mobile so I am within 16 days.” Hoping to appeal to some sense of reason, I explained to her this wouldn’t work as I had not received my new phone yet and couldn’t be without a cell phone while I was traveling.
After discussion for a few minutes, she informed me that there was simply nothing that she (a “senior manager”) could do to help me unless the phone was mailed back the next day. I explained to her that I had been a customer for over 10 years. I explained to her that as a matter of principle I would leave T-Mobile at the expiration of my service contract. She understood. Her hands were tied. The “senior manager” didn’t seem to be so “senior” after all. With that, she apologized, and ended the call.
Where does that leave me? While the $40 isn’t all that important, the principle of the matter sure as heck is. So, I will leave T-Mobile, and a 10 year customer will be gone. Poof. A $12,000 customer is being lost over the return of a $40 phone.
What are the lessons for us entrepreneurs?
First and foremost, your business should be calculating the LCV of every one of your customers and making that information available to all of your employees on a monthly basis. At Advantage, we have a software system (Infusionsoft) that makes this info available to all of our team members, real-time, every day. In addition, QuickBooks can provide similar information. This one step alone will help you and your employees make smarter decisions. If the senior manager knew that I was worth $12,000, would she have made a different decision? Maybe.
Another benefit of sharing LCV with your employees is that they now know who is responsible for putting food on their tables. If Client A has a LCV of $100,000 to your business and Client B has a LCV of $5,000, your people now know what phone calls to return first.
Secondly, you must empower your employees to make decisions that are in the best interest of your customers. For example, if your average client is worth $10,000, you might create an empowerment boundary that gives every team member the ability to make an on-the-spot decision of up to $250 to please a customer. It is up to each business to create the appropriate boundary. That said, customers are VERY impressed when rank and file employees are able to make decisions that are in the best interest of the customer without having to appeal to higher authority. It
Finally, think long term. There is a reason why we call it LIFETIME Client Value. Stop thinking transaction by transaction, and think 2, 3, 5, and 10 years out. Think short term pain for long term gain. In the case of T-Mobile, for a short term hit of $40 they would have retained a $12,000 client for at least another 10 years. But instead, being myopic and only looking at the immediate, they are going to save $40 but loose $12,000.
The story above provides a real opportunity for entrepreneurial small businesses. LCV is a critical metric that you should be using to make intelligent business decisions to satisfy and delight your clients and customers.