Steve Blank - Develop Customers over the digital channel
Upsell - Nextsell - Cross-sell. Keywords and activities that are of great importance for our other customer strategies. As in the physical channel, it is also in the digital channel that we need to create a way to keep our customers loyal to us for a long time.
The previous eight articles dealt with how we can find, get and retain our customers, whether they are of physical or digital nature. In this concluding article on "The Secret of Customer Relationship", we will focus on two other very important topics. The so-called "Life Time Value" (LTV) and the associated "Customer Acquisition Cost (CAC)", the costs to gain a customer. The LTV is the value that basically tells you how much a customer has earned you in the course of your business relationship. This should have a ratio of at least 3:1 to the CAC by the end. We as startup founders, have little or no thought about how much we can, should or allow to spend on acquiring a customer. To even get this value we have to think one step further. We have to think about how we can persuade them to buy our services again and again, how they invest more in them and how to stay with us for a long time.
As mentioned earlier, the declared objective must be for the LTV to be larger than the CAC. It should also be taken into account here that the turnover with a customer requires some services. We need personnel, hardware, knowledge and much more. All this counts in the CAC. The net value is of high relevance, because only with this do we have a real value to determine LTV. Once we've done our homework and adjusted our numbers, we can also "give away" something more easily. This in turn makes our customers happy and they enjoy working with us. Hardly elsewhere does the saying "Small gifts keep the friendship going" apply as much as it does here and hardly elsewhere is it as important in (future) sales as it is here.
It is in people's nature not to commit to a business partner or product for the rest of their lives. In times of price comparison websites, price wars between companies like Vodafone and Telekom or e.g. discounters, one assumes a fading time span. Of course, there are exceptions here too, but in order to obtain a value with which one can calculate - and this is important for investors, banks, and other funders - one usually assumes three to five years. So if you manage to make your LTV´s viral and loop, it will decrease and therefore increase your financial cushion, which in turn will attract more new customers. If your customers recommend you and you get more customers, the CAC will decrease again ...
The more accurate you can analyze cost and revenue streams, the better you can figure out how to optimize your CAC. While a few years ago this was done by mathematics, stochastics and manual work and (sometimes very sophisticated) Excel tables, today there are tools that throw out daily updated values and help to decide when a discount costs nothing or only little. These tools constantly throw out new key figures, which makes it very easy to work with. CRM - Customer Relationship Management (more on this on Wikipedia) is the name of this software and you can find it in the open source industry from free to very large cloud solutions and up to very expensive. There is something for everyone. So if you really want to start marketing targeted sales at some point, you should definitely take a look at it.
This article is written by our CEO, Bernd Korz. With his experience as an entrepreneur, he shares his vision about the lessons provided by Steve Blank. Join us every week for a new article on Steve Blank’s lectures.
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