Business Media Articles (Archived)

Lifetime values in business

Retaining customers and clients is the most cost effective manner of achieving sales and reaching seemingly impossible sales targets.

However, in today's world of severe business competition, the loyalty of a customer has to be won and price is not the most critical element in the establishment of a long term relationship. It is naturally extremely important, but not to the exclusion of everything else that matters just as much: service, quality, and value-for-money are the other key factors in client retention.

And customer retention is the end result of a successful demonstration of lifetime values in business.

Lifetime values in business is, in fact, recognising the obvious, the commonsense attitudes that should be adopted and - this is the hard thing - putting them into practice.

Many British businesses could learn by the example of a supermarket in New England. They carried out a simple exercise in ascertaining the average length of time a local resident, and therefore a potential customer, lived in the area. The statistics revealed that the average to be ten years.

Without being too greedy, or placing their expectations too high, the supermarket estimated that each household within the vicinity could spend around $100 per week. By adopting lifetime value approach to their customers and retaining them for the period in which they were living in the area, the supermarket would net $50,000.

The supermarket team at New England saw the comparatively low spending customer not as a short-term source of comparatively unspectacular income, but a much bigger contributor to the company's success, purely by the lifetime value approach (e.g. 50 x $100 = $5,000 x 10 years).

The supermarket therefore set about training every member of its staff to adopt a ten-year vision when dealing with everybody who walked through the doors - not just to retain their business and turn them into a $50,000 asset, but also to generate the customer satisfaction that breeds rapidly.

There is no finer form of advertising than word of mouth recommendation, and the supermarket customer spending $100 a week merely has to recommend that particular supermarket to another customer and immediately the $50,000 potential is doubled. It takes very little calculation to realise that dealing with customers or clients in a manner that gives true satisfaction is the key to business success.

And so our thoughts which began with a reflection lifetime values must inevitably turn to customer service, in all its aspects.

I believe the service-related problems in British business today are twofold:

the need to keep overheads to the minimum
the effects of the technological advances which have replaced people with electronics.

At first glance the two appear to be complementary: the forward surge in technology has improved efficiency in many sectors of business operation and reduced the need to employ substantial numbers of personnel. Unfortunately that isn't the case: technology has certainly led to vastly enhanced manufacturing techniques, accounting procedures and our business life generally.

However the country's business leaders have mistakenly believed that computers can achieve more than they really can. They have consequently reduced their workforces (in an attempt to achieve reductions in overheads) to such an extent that the vital element of service has disappeared.

Let's look at the first point where a company can provide a first class service to potential or existing clients: the telephone switchboard.

In an attempt to drive down costs, many of the larger companies have introduced the highly frustrating and extremely irritating recorded welcome asking the caller to select a digit from a number of options.

Once one has trawled through the various options one may well be faced with another impersonal technological advance - voice-mail. While it is convenient to be able to leave a message, it is highly inconvenient if one needs to speak to somebody at the company and obtain a decision there and then; it requires more digit pushing, or redialling to achieve the objective - a conversation with a human being.

I have yet to meet anybody who favours this so-called advance in customer service, yet it is becoming more and more prevalent. I can only assume that the drive to reduce overheads takes precedence over a friendly personal greeting from a living person who can direct the call to the appropriate person, or select another member of staff should the required extension be engaged or unattended.

At Close Invoice Finance I have pledged never to replace our switchboard operator with a recorded device. A cheerful, polite and efficient greeting by a telephonist can set the tone for the subsequent telephone conversation, and it is therefore up to all members of staff who deal with customers to be equally as telephone-aware.

Naturally, companies manufacturing products must then have, as their service priority, the quality of their goods and the ability to deliver them on time. The more often this is achieved, the greater the enhancement of the reputation of the business, and the easier it is to make sales at a time when economic pressures are working steadfastly against the salesman.

I would repeat my belief that the company giving a pristine service that has been demonstrated over and over again does not have to be as price conscious as those with a lesser reputation. Despite all the pressures on prices and margins I have found that value for money is the prime consideration.

As John Ruskin once said: 'The bitterness of poor service lasts long after the initial sweetness of a cheap price' - there is no doubt about it, quality is not expensive, it is priceless.

These are the policies we adopt here at Close Invoice Finance; we do not profess to be the cheapest in the factoring and invoice discounting industry, but we do remember that service is everything. I believe our own figures speak for themselves - we retain our clients 2_ to 3 times longer than the average for the factoring industry. We have been described as a 'class act' by competitors who have openly admitted they find it difficult - if not impossible - to 'poach' our clients.

We don't have the same problems.

It may sound as if I am 'blowing my own trumpet' - and I suppose I am - but I can only use my own business as an example of how this passion for customer service has paid off as our greatest lifetime value. We are one of the most profitable businesses in the invoice finance sector, something that has been achieved by all members of staff, at all levels, remembering at all times where their priorities lie - with the customer.

As credit control forms a crucial element of our full factoring service the comments I have made here may therefore be read in the context of the entire credit control function. If the credit control staff at Close Invoice Finance are going to be effective, they must build up a rapport and working relationship with the clients on whose behalf they are collecting money.

Then they must pull in the cash in such a manner that the debtor is prepared (and almost happy) to pay outstanding accounts. It is gratifying to me that the attitude of our staff has been so effective that no only do we collect in cash at a faster rate than the industry norm, we even win new clients from the ranks of those debtors.

Unfortunately we are currently witnessing a severe downturn in the fortunes of British business, particularly in the SME sector; the number of failures is quite alarming. I appreciate that much of the problem has been brought about by national and international economic pressures, but it interesting to note that at the smaller end of the sector the more established businesses are surviving longer than the fledgling organisations. Could it be that these are the companies that have been aware of, and have adopted, lifetime values in business. I suggest the answer could be 'Yes'.


return to business media articles