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The Value of a Lifetime

  |  April 23, 2001   |  Comments

Building a relationship with a customer can take a good deal of time. And money. And maybe the short-term payback isn't there. But think beyond the initial conversion. Think big picture. Think long term. Think lifetime.

From time to time, I try to relate good offline experiences to what we do here online. I think it's safe to say we can learn and apply tons of worthwhile tidbits from the terrestrial world. That point was driven home last week, in fact, when I went to a little local sandwich shop, Jean's Deli, located outside our office building. The owners make the most amazing homemade soup, plus their prices are reasonable, and they know regular customers by name.

Anyway, on this particular day, I noticed an extra pack of crackers when I unpacked my soup. Somewhere along the line, Jean and her husband noticed that I always grab an extra pack from their basket as I head out the door. That day, I didn't have to.

Doesn't sound like a big deal, but this is precisely the type of detailed attention that creates lifetime customers. An action triggers a reaction and all that sort of stuff.

A Little Goes a Long Way

The little things do count. So how does this apply to what we do? Well, if you read last week's article on retention marketing, you saw that it really doesn't take much to start building this sort of relationship via email. Some of the more robust solutions, especially, can help in this endeavor.

Imagine clicking on an email promotion from your favorite online software retailer. You're directed to a specific product page on the site, and you place an order right then and there. An email message thanking you for your order is then immediately sent to your inbox. A few days later, a cross-sell promotion for a complementary software package is then sent. Even if you just click and don't make a purchase, an "appreciation" message is sent to you offering a link to a free downloadable gift -- a nifty new desktop gizmo that allows you to take a break every now and then from all of your software shopping. Just for being you.

Can't do these types of dynamic, on-the-fly, relationship-building messages due to cost or resource constraints? Then think beyond the initial sale and/or conversion, which may or may not be profitable right away. Think big picture. Think long term. Think lifetime.

Let's say a customer costs you $200 to acquire through a series of email promotions and spends $300 when he or she finally succumbs. This customer isn't very valuable when you take into account your fulfillment costs, overhead, etc. -- at least not at first glance, anyway.

Build in a well-thought-out email follow-up plan and that same customer begins to increase in value over time. Bigtime. That $300 could very well turn into $3,000 within a few years -- and no additional funds outside deployment costs need to be spent to get it.

This idea of wooing with direct response is nothing new to many traditional offline marketers, of course; yet it's certainly not something that has become mainstream for those who promote with email. For many companies, email is still the "low man on the totem pole" when it comes to its priority within an overall marketing budget.

Sow Now, Reap Later

Let's return to the software retailer as an example of lifetime, or long-term, value (LTV). One acquisitions email promotion brings in 200 new customers, each with an average order of $89, or almost $18,000 in revenue. The direct costs for the campaign were approximately $25,000. Although the campaign is not profitable, if this company continues to regularly promote its products to these 200 new customers over the course of a year, it will end up selling additional products to a certain number of them. And, remember, these in-house efforts will cost less on a cost-per-piece basis than an acquisitions effort.

For example, suppose that over Year 1, based on follow-up email efforts to those original customers, another $6,500 in revenue comes in the door, and the company has essentially broken even (made up the loss) from its original acquisitions campaign.

The following year, cross-selling efforts yield another $10,000. Year 3's efforts bring in another $12,000. By the time Year 5 rolls around, a grand total of nearly $50,000 -- including revenues from the original acquisitions campaign minus both the house deployment and outside list-rental costs -- is the result. Divide that number by those original 200 customers, and you can see where LTV comes into play. That's $250 per customer, which is a considerable leap from that negative figure when the customer first came in the door.

If you haven't already, you're probably beginning to see why I am such a huge proponent of retention email marketing. Not only is it fairly easy to develop a simple plan (one that can be expanded upon by degrees), it's also cost-effective and -- as you can see above -- can truly give you more bang for the buck over the long haul.

Sure, the upfront costs can appear overwhelming, depending on your company's budget. My advice: Sink more dough into email and less into the so-called "awareness" ads, and get some real results for a change. A solid plan of action that includes regular direct-response communications is the key to building relationships (and sales) with your customers, and email happens to be a great channel for getting customers back again and again.

That reminds me... it's time to stop by Jean's for another cup of soup. See you next week.

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Kim MacPherson

Kim MacPherson is President and Founder of Inbox Interactive, a full-service email marketing agency specializing in promotional copywriting, HTML design, planning, and deployment/tracking solutions. Kim is also the author of "Permission-Based E-mail Marketing That Works!"

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