The client has done no new business with the firm. However, they are due to retire and will have possible investments of around £200,000.
So over the next three years, the potential CLV, again using a 3 per cent initial advice charge, the same acquisition costs and ongoing charge is £6,800. Making this a client well worth retaining.
For example:
- Year 4 £6,200
- Year 5 £300
- Year 6 £300
Step 2
Once your CLV is calculated, this insight can help any business formulate their client acquisition strategy safe in the knowledge that they now know the current and future value and profile of their most profitable clients.
The strategy should be to retain them and any new client acquisition should concentrate on clients that match this profile.
Also, and perhaps more importantly, once you are clear about the frequency and potential value of any future engagement with your clients, you will have a better handle on how to allocate your sales and marketing spend.
CLV analysis should be the foundation of your client retention program. This is because, part of the process of identifying future value is of course an analysis of what will be the potential lifetime of the client.
You need to map out what their journey of life will be, and when and how will they need your advice, empathy and proposition. You can then calculate the potential value they will add and decide how important that client is to you and your business.
In the old world of the Hunter sales model, one-off sales were fine, but isn’t it more attractive to your business for good clients to provide you with repeat business on an on-going basis?
The obvious way to achieve this is to have an attractive proposition with a fair price and deliver excellent customer service.
We will see more and more business models moving away from hunting for new clients as on-going service provides a more profitable business paradigm.
I’d ask you all, how many of you know the current and future monetary value of each of your clients and how many of you use this metric to influence the profitability and success of your marketing, acquisition and retention strategies?
Customer retention- the new marketing
What retention policy does your business have in place to safeguard your long-term relationship with the clients that provide your business with most value and profit? Do you have one? Have you ever thought about having one?
Every profitable client in your business who leaves or ceases to trade with you deprives you of a profitability stream that might otherwise have continued for many years.
