Do You Know How Much Money You Lose When a Customer Walks Away

There are indicators to the health of each business and it can be captured in numbers and a database. For our topic on business growth, one of the more important indicators is knowing the number of individual customers who pass through your business, knowing what they buy, the cost of their individual purchases, and how frequently they purchase.

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We continue from the last article on Why your business is bleeding a lot of money daily. These numbers are critical in helping you to plan for future expansion and the numbers also tell you when trouble starts to happen on your business. The best way to keep ahead of these types of numbers is to have a have a method of recording individual customer purchases. The advent of digital receipting systems help in having the more unwieldy data in a compact format.

Digital records, including the data you can generate from your own responsive website, also make it easier to collect customer data regardless of your business. Phone numbers and names are very useful client data and are invaluable in planning expansion strategies, launching new products, and in keeping customers coming back when you have new offers. In this article we will learn how to calculate the exact amount of money you lose in your business, each time a single customer walks away.

The value of one customer in figures 

Here’s a quick way to determine the lifetime value of your customers. To get a figure you must have a system of recording transactions in your business at the very least. The best place to start to generate a log of your potential and current customers is to have your own responsive website. Poor record keeping is a disease of many smaller businesses and it makes it more difficult to identify the problem when the business starts to record losses.

Although calculating the value of a single customer can be a complicated mathematical activity with several variables, we have kept it simple so that the small and start-up business owner can calculate their customer value. Therefore, the formula we use here is deliberately simple so that most small businesses can follow.

1. You need a figure for the average amount of money a customer spends in your business a month.

• To get that figure add up your total sales – all the cash that you collected – over a particular period. Three/ six/ nine /twelve months
• Divide the cash total by the total number of sales transactions
Example: let us say Company UVW has sold goods worth 540,000 in one year. Since they give a receipt on each purchase and they have a total of 3600 receipts. So on average each transaction in Company UVW is Kshs 1500

2. Get a figure on how many times a year a customer buys from you

To get a figure take the number of transactions and divide the number of transactions by the number of individual customers. Knowing the number of individual customers will be greatly helped if you have a method of recording individual customer purchases. A digital receipting method will make it easy to pull out this information from the back-office database.

Example: in Company UVW we said the number of transactions in a year were 3600. They also found that they have 150 individual customers. That is:
• Number of times a customer buys in a year (3600/150 = 24)
• Number of times, on average, customer buys in a month (24/12 months of the year = 2)

Each customer buys from Company UVW twice a month, and each purchase is worth Kshs 1500, so on average per month they buy goods worth Kshs 3000

First: When a customer walks out in a huff they leave with their average monthly purchase amount multiplied by the months of the year.

For Company UVW, each time they mishandle a customer they chased away Kshs 36,000. That is Kshs 3000 per month by 12 months of the year.

The value of repeat sales

To get more out of your business, you want your customers to buy form you more than once, and as often as possible in a year. Repeat sales are what push up profit margins.

The reason Telcom companies, banks, schools, hospitals, etc,  records millions annually is because from the one client, they make tens of sales and several times in a month and in a year.

However and continuing with our conversation, it is not only the Kshs 36,000 that one customer walks away with. They walk away with much more. Every customer if handled right is worth anywhere between 2 and 21 more clients. Yes!

Every customer comes with their purchase value and that of others
Each customer if handled right and under certain conditions brings to your business through word of mouth anywhere between 2 and 21 more clients. However, we will be very conservative and use the lowest figure – two.

Keep in mind what we discussed in the article Why your business is bleeding a lot of money. Word of mouth is your most competent selling piece and the customer who tells others is your most important customer. A business may grow without advertising, but none can survive negative customer stories or informal reviews.

Most marketing and promotion will at the highest get 30% conversion, but mostly less. Advertising conversion means that if you run an advert and 100 people see it, and if you are already known in the market and your product is really good, the best campaigns will get a maximum of 30 people of the 100 coming to check out the new offer.

In contrast, word of mouth has a staggering 50% to 70% conversion.

When a friend tells a friend about a good thing, if they speak to 2 people, one of the two told will check out the new business. If they tell four, two will check the business out. So if out of the 150 clients of our make believe Company UVW above only one third or 50 of them speak to two people each, it will mean an added revenue of 25 new clients by the Kshs 36,000 approximate annual revenue from each client.

The total is Kshs 900,000 more income in the next twelve months. That is a lot of free and very targeted traffic coming in to any business.

So in effect we are saying that one unhappy customer does not walk away with their Kshs 36,000 annual income only. They walk away with the additional income of another one new client if they are very conservative in sharing their good experience with your business. The client who intended to buy goods worth Kshs 1500 but changed their mind walked away with a stunning Kshs 72,000.

A major reason businesses owners who do not know this matter struggle to stay in business is they lose the 150 clients faster than they gain the additional 1 additional client inside each one of their existing clients. Remember, some clients have just one additional client, some have as many as 7 and yet others up to 21 new clients. You can never tell who has what potential. So treat them all like royalty.

Keep in mind and for whichever business you are in:
• Word of mouth advertising is the most powerful marketing method there is, second to none.
• Word of mouth is absolutely free
• Word of mouth needs very little to start a chain reaction

To grow your business, NEVER look at a customer as just the Kshs 100 or Kshs 500 they are holding in their hand at this moment. A customer is worth their repeat sales and the purchases from their friends.

Articles in This Series

Two Ways You Are Sabotaging Your Business Growth

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Why Your Business is Bleeding a Lot of Money Daily

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Best Income Tips on Attracting More Customers
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