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How to Calculate the Value of Customer Relations

By: Jesse Aaron

 

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how-to-calculate-the-value-of-customer-relationsCustomer relations are inarguably one of the most important performance drivers of your business. Unfortunately, many companies often push customer service to the sidelines because they have a hard time understanding the value of providing good customer service and the lasting impact it can have.

 
The good news is that there are ways for companies to quantify the value of customer relations. This means that you can actually enumerate the customer lifetime value, or a prediction of gross profits for the entire future relationship with a customer. Understanding the potential value each customer can bring to your business can help you improve the management of customer relations and can be greatly advantageous to your company.
 
First of all, you’ll want to calculate how much profit you have gained from each customer this current year. This means looking at revenue per customer and subtracting the costs of servicing that customer. If you’re dealing with hundreds or thousands of smaller customers, you can use estimates for buying patterns based on customer profiles.
 
Next, try to estimate how long you will likely keep each customer. Which customers are more loyal or repeat customers and which are just one-time buyers? This is the expected lifetime value per customer.
 
Break down your customers into segments that require large marketing or discount investments up front and which ones require regular maintenance. Estimate costs for different groups per year. And don’t forget to factor in the legal costs associated with running a full-breadth of customer service. For example, if you’re running contests with massive entrants, you’ll want to account for sweepstake attorney costs.
 
Now you should be able to build a cash flow model based on this information. You can start to understand how much it costs to acquire and retain a customer vs. how much profit you are making from them. You might be surprised to find that you are putting money into the wrong areas in order to build your customer base!
 
One of the most neglected areas often turns out to be customer relations. They are integral to the success of your business and to increasing a customer’s lifetime value. 
 
Here are five tips for improving customer relations.
 
  1. Make sure your employees know how important their job is. Customer relations personnel often have no idea how important their job is to the success of the company. Answering calls or angry emails on a day-to-day basis, one can easily lose sight of the scope of their work. Make sure to find ways to encourage your employees and find ways to show them how directly their work correlates to the company’s success.
  2. Don’t be afraid of having a personality. Nobody likes a customer service robot. Make sure your employees bring their own personality to the job—it’s usually their strongest trait! Customers love interacting with real humans and the feeling of connection and being empathized with.
  3. Keep your brand at the core of your customer relations. If your employees don’t know the ins and outs of your brand, why your company exists and what your goals are, they won’t be able to perform customer service as effectively. Make sure they are all possess an in-depth understanding of the driving forces behind the company—it will help them assist your customers and will also incentivize them to do a great job!
  4. Be more available. Some of the biggest pitfalls of customer service are long response times and inconsistent service hours. Make sure that your customer relations team is ready and available either 24 hours a day or at least for consistent hours 5-7 days a week and that you monitor response time to keep it speedy. Customers will have a much more satisfying experience and this will help improve their customer lifetime value.
  5. Develop a sense of community. Make sure your customer service team has a presence on your site. Photographs go a long way toward making customers feel like they can relate to your company, which makes them more willing to become a part of it. Hosting events that offer face-to-face interactions is also a great way to make customers feel included. If you don’t offer bi-lingual support, at the very least you should consider investing in document translation services to allow wider audiences access to your content.
 
These methods could definitely help to improve relationships with your customers and to increase customer lifetime value over time. Get together with your customer relations team and brainstorm other ways to make your customers feel more engaged. 
Published: October 31, 2013
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