Customers Rule or Do They?

Understanding your customer’s journey and making it easy to do business with your company will lead to raving fans. Here’s what to do!

Key Takeaways:

•  Cultivating a customer-focused mindset will lead to raving fans.
• How customers feel about your company is as important as the product or service provided.
• Nothing says you care like a personalized approach.
• Every person in your company is responsible for customer success.
• Identify friction points in your value delivery process and make them disappear.
• Knowing your LTV (Lifetime Value) and CAC (Customer Acquisition Cost) helps emphasize the importance of customer retention.

Questions to Consider:

• Do we have a documented, proven customer success process (CSP)?
• If yes, are we reviewing this regularly for opportunities to enhance it?
• How would we describe our attitude toward our customers?
• Who in our organization is responsible for monitoring and improving the CSP?
• Do we differentiate from our peers when it comes to our customer approach?

Quick Story

We have a veterinarian just down the road in a great location. They do great work and seem to care deeply about animals. The only problem is that they are focused on the wrong thing—pet care. They fail to realize they are in the people care business. How are they demonstrating that they are failing? When you arrive for an appointment with your pet, you are asked to stay in your car. The vet tech will come out and get your animal, perform the exam or whatever service they are providing, and return your pet to your car afterward. The vet then explains what they observed and the treatment protocol. The receptionist shares the bill and takes your credit card.

Pets are integral to many people’s lives, and vet care is costly. Making people wait in their vehicles might be ideal for the clinic, but it is bad for business. Recently, my wife took our dog, Boomer, for some blood work. The skies opened up right before the tech came out to grab Boomer. Upon return, the tech left the back door open while explaining how to administer the prescribed medicine. The door, the car, and the tech got soaked. The conversation was rushed. How would you feel in that situation? In 15 minutes, you spent $200, got the inside of your car soaked, and had little interaction with the staff caring for your family pet. My wife was not pleased.

Is what they are doing wrong? Not necessarily, at least not for them. They have set their business up to serve their preferences, not the preferences of those who pay the bills. When supply is limited, you can do what you want because there are few alternatives. Ample supply, however, requires a different approach to maximize your capacity.

The first step in building a customer-centric approach is cultivating a customer-focused mindset. Mindset matters. If the leader isn’t all-in on customer success, the organization won’t be either. Why does your company exist? In my experience, the most successful businesses have customer service at the heart of their work. To serve and be served is the ultimate exchange. The team members in organizations that obsess over customer success find their work more fulfilling. They have a sense of purpose and meaning. In return for your organization’s passion, raving fans will promote your business and buy more of what you offer.

Next, you will want to map the customer journey.

• List every touchpoint for your customers: Before, During, After. (Build a flow chart.)
• Where is there friction or potential for friction in the current customer journey?
• What is one step in the process that can be changed to improve your customer's experience?
• Has everyone who interacts with our customers been trained and tested?
• Schedule time quarterly to review the customer journey for improvements.
• Conduct audits regularly to confirm that what you believe to be true is the reality.

Nothing says you care like a personalized approach. How do you feel when a place you frequent knows your preferences? I love it. I feel special. I feel good about myself all day and look forward to my next visit for another hit of that "I am special" feeling. Social media platforms like Facebook have a trillion-dollar market cap because they have personalized their members' feeds. The personalized approach leads to outsized success when done right.

The key to your company’s success is understanding these numbers. What is the Lifetime Value (LTV) of a customer? Understanding the LTV will help determine where to focus the company’s efforts. In general, there are two transaction types:

• One-Time: A fence is an example of a one-time transaction. Most homeowners will only install one fence on their property. Of course, if they move, another fence might be needed, but the likelihood is low.
• Recurring: A veterinary clinic is an example of a potential recurring transaction. Yearly checkups and pet emergencies are part of pet ownership.

Which of these requires a more personalized approach to maximize LTV? The answer is both. Even though it might seem like the vet clinic has more incentive, the fence company thrives on referrals. The LTV for each can be equally valuable.

How to Calculate LTV

LTV = Average Revenue per Customer × Gross Margin ÷ Churn Rate

Note: Average Revenue per Customer is a time-based number. For example, if you charge $1,000 monthly, your average monthly revenue would be $1,000 and $12,000 yearly. This is important to note because your churn rate needs to match the rate used to determine the average revenue per customer. If you lose 5% of your customers annually, this is very different from losing 5% monthly.

Example of LTV:

LTV = $144,000

Assumptions:

• $1,000/month average revenue or $12k annually
• Yearly churn rate of 5%
• 60% gross margin

Another vital metric to know and understand is Customer Acquisition Cost (CAC). After we know our LTV, we can determine how much we will spend to acquire a customer. If the LTV is $1,000, we should spend less than $1,000 to acquire the customer. We want to establish a ratio. If your LTV is $1,000 and your cost to acquire the customer is $100, your ratio is 10:1. In other words, you put $1 in and get $10 out. Not a bad return. The higher the ratio, the better the investment. It should also be noted that a high ratio might mean that you are not growing as fast as you could be. Determining the optimum LTV/CAC ratio will ensure your business is growing at an optimal rate—not to mention in a more predictable manner. Keeping this ratio front and center will help you understand the impact of a new competitor or market downturn.

Calculating CAC:

CAC = Marketing and cost of sales over a specific period ÷ Number of new customers over the same period

Example:

• Marketing & Sales Cost = $10,000/month
• We acquired ten new customers in the same time (one month).
• CAC = $10,000 ÷ 10 = $1,000 per customer

Bringing It All Together

Most companies have limited visibility into their customers’ journeys. They are inwardly focused. In other words, they don’t ask what is best for the customer; they ask what is best for the business. This approach leads to customer dissatisfaction and lack of loyalty. It only stands to reason: you don’t care about me, and I won’t care about you. The customer is not the enemy or the obstacle but the path to success. Understanding your customers' journey and the cost of acquiring customers helps you identify friction points for your customers. When you have the friction points identified, it is important that everyone in the organization work to eliminate those friction points. Doing so will make it easier for customers to do business with your business and refer others to your business. The objective is to create raving fans who refer your company. Understanding the customer journey and the cost of acquiring customers will lead your company out of the darkness of ignorance and into the light of reality. Long-term, repeatable success awaits.

My experience has been that transformation begins when leaders take an intentional approach to leading. Winging it is the path of least resistance and the path to limited success.

Are you regularly answering the five questions everyone in your organization wants answered?

• Where are we going? (Vision)
• Who is going with us? (Culture)
• Why are we going there? (Purpose)
• How do we get there? (Plan)
• What does winning look like? (Performance Measurement)

If you know a leader interested in future-proofing their business, share this article with them or send them to http://www.ownyourcategory.com.