How Much is Your Customer Worth?

Let’s perform a simple calculation with your customers.

Here’s the math: What is the size of your average sales ticket? How many times a year does a customer come into your liquor store? Multiply the two and the answer is how much that customer spends in a year. How many years does the average customer spend with you? Add that multiplier and now you have an idea of how much they spend in their lifetime.

One last calculation: what is your gross margin? Multiply that by the lifetime spending and you have how much profit you make from the average customer. That’s a pretty substantial number, don’t you think? Perhaps we should work harder to keep that customer and to get more customers.

The alternative is to constantly work to get new customers. We see that most frequently by way of weekly newspaper advertisements, and in those big holiday inserts saying, “Shop our discounted prices for your holiday party.” While the industry seems to have a tradition of using this methodology, research says the higher the discount the customer receives, the less likely the customer will return even for a second time. 

There is another issue with this marketing alternative. It is so expensive, and to gain market share, most retailers will do more expensive advertising and discounting. Could we consider different ways of keeping that customer, and getting more customers like them?

With most of the world wanting to play that “game” of discounting prices, we must remember that the store that becomes a commodity last is the winner. Being the store that operates different will require different thinking.

What if we to look at the part that we play in customers’ lives? The dinners, celebrations, watching sporting events, picnics and parties — even “the work week is over” moment. We could teach our customers, on an individual basis, how to enjoy our products, and related items we sell them.

What if we were to visit websites, such as nationaldaycalendar.com, to stay on top of the many special days during the year? After all, isn’t “Talk Like A Pirate Day” a reason for our customers to enjoy what we sell? Being the business that communicates this information, these ideas for celebration, can make us very different from the businesses that want to communicate just the item and price advertising.

We could take a page from the play book of the back-to-school promotions, wherein retailers create pre-determined packages of merchandise based upon guidelines given by the teacher. Substitute the various events and celebrations you call to your customer’s attention, and instead of selling a liter of some product, you’re selling a complete “celebration in a box.” The more items your state laws allow you to sell, the more items you can add to the box. 

Or: Your outbound email campaigns can become interesting and entertaining news that you share, showing how you can help your customers enjoy and celebrate their lives. Your store is a part of their lives; your competitors are only liquor stores.

I remember a class I used to attend every year or so. The instructor, while engaging, made a point of giving a postcard to every attendee. While I last attended that class over 20 ago, I remember the message imprinted on the card; “Here’s to the holidays; all 365 of them.”

Tom Shay is a lifelong small-business owner and manager. He has authored 12 books on small business management; a college textbook on small business financial management and co-authored a book on retailer/vendor relations. Tom has written over 400 articles that have appeared in over 70 international trade magazines. Read his recent piece, Why The Alcohol Retail World is NOT Changing.

3 COMMENTS

  1. Thanks Toby, you nailed our business model! Hope you get a chance to visit one of our WineStyles Tasting Station locations, you’ll love our “clubhouse”!

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