How Much Is A Customer Worth?

If I ask a bunch of tackle retailers what their most expensive asset is, most will answer their inventory; it’s the largest item on the balance sheet under assets.

Others might answer the value of their real estate, their location, their investment in staff and training, while others might answer it is their sterling reputation.

The most valuable asset a business has oddly isn’t even listed on the balance sheet. No, asset #1 far and away is the individual customer.

The customers drive sales, which represent the top line of the P & L statement. If the consumers don’t buy, the business fails. And ironically, the customer base is quite fragile and perishable, and all too often, not honored by the retailer.

Not only does the customer represent present and future sales, but they hopefully are also a walking talking endorsement of your store and freely encourage others to buy from you.

And yet, in the face of this undeniable fact, many retailers perpetually are doing or not doing things that erode consumer loyalty. And in many cases, stores do things that permanently drive the customers away.

Not only are many customers chased away by acts or failings from store management, but these same customers will, for many years, tell their friends about the bad experience vowing never again to shop there. The cost in lost sales and damaged reputation is huge.

More specifically, how are we driving our customers away? The primary reasons customers leave are staff indifference, uncompetitive prices, failure to match competitors’ prices, poor return policies, lack of product selection, failure to resolve consumer complaints, stock outs on advertised products and viewing the consumers as a commodity rather than a treasured asset.

And the most aggravating retail transgression of all is the failure of the merchant to address any consumer complaint stating “It is our policy…” as a reason to not accommodate the consumer. The store’s policy is most likely in direct conflict with the customers’ policy of dealing only with retailers who are willing to satisfy a consumer’s problem regardless of where the fault lies.

One’s appreciation of the customer is heightened if you can estimate the dollar value of each consumer over the average lifetime of your consumers. Have you estimated the lifetime value of a customer? Are they each worth $3,000, $10,000, $30,000, $50,000 or higher?

Begin by determining the total customers you have. Don’t have that number, then shame on you. If you are actively obtaining customer email lists, there’s a good start. Another option is to simply do head counts on a daily basis for a week or two. It’s also possible your store POS system provides the daily or weekly customer transaction counts and average value of those transactions.

Next build several theoretical customer purchasing profiles. For example, if you assume a customer who is age 25 might be a customer for 30 years. If this customer spends at least $700 a year for 30 years. That’s $21,000 plus all the impulse purchases and special sale events you will host.

I suspect, the average consumer for the industry over a 20-year period will spend $10,000 to $25,000. If you lose 100 customers over 20 years, that amounts to lost sales of $1,000,000 to $2,500,000. Ouch!

Don’t believe the numbers? Develop several scenarios based upon your own sales and consumer records.

Remember, it is much cheaper to keep an existing customer versus trying to gain a new customer. Retailers, it is in your best interests to honor your most valuable asset and keep your customers returning again and again!