For very young businesses, finding new customers is paramount.
And once the business is more mature, its owner or marketing department is still on the hunt for more new leads.
But after a point, it's actually more cost effective to focus on the customers you already have.
If you can keep them coming back for more, your company can thrive well into the future.
Each individual customer has their own total lifetime value.
In some industries, like insurance or legal services, customer lifetime values are very high. In other kinds of businesses, like apparel retail, some customers will have higher values than others.
How can you extract more revenue from each customer?
There are things you can do, and one of the most effective is to increase the average size of transactions with your business.
Basically, you can get them to spend more money.
There are two strategies for this: upselling and cross-selling.
In a recent article from Entrepreneur, the author explains how you can find ways to convince your customers to buy more than what they came for.
Increase your average transaction size.
Do you ever notice that whenever you visit McDonald's, your bill exceeds your budget or intended purchase?
The fast food giant increases your transaction simply by offering complementary products to go with your order (“Fries with that?”)
That way, you spend more, and McDonald's earns more.
You get to eat more, to your satisfaction, and McDonald’s gets more money.
Multiple ways of idoing the same thing — increasing the average transaction size for each customer — include:
Cross-selling.
This is the act of attaching other services or products from your business at the checkout stage for each customer. It is not meant to replace the main product; rather, the new offer or product complements the main purchase.
For example, for a business like Namecheap, while a customer is paying for a new domain name and hosting privileges, cross-selling can be used to include an SSL certificate (which is necessary) or a personalized email service. This leaves the customer no choice but to take the extra offer, which increases the transaction size and revenue for Namecheap.
Retail giants such as Amazon and eBay regularly boost their revenue by using this technique at the end of a customer's product purchase.
Takeaway: Meet with the marketing team and analyze your business offerings. Then, brainstorm necessities that complement your main business offering, which you can cross-sell to your customers.
Up-selling
Up-selling is a marketing technique that involves pushing customers to go for a more expensive package or offer, or promising more value.
A marketer or salesperson can influence a customer into buying the latest version of an item instead of the less-expensive current model by highlighting the new features on the latest version and displaying the latest product pages.
Up-selling might sound selfish, but at the end, you'll have happier, more satisfied customers. According to sales guru Jeffrey Gitomer, “Up-selling helps your customers win since you’re delivering more value.”
This technique is often used by SaaS companies, such as Buffer, Godaddy and other brands offering consumables.
Takeaway: Understand your product; timing determines everything. Up-sell your customer at the point of purchase, offering a detailed demonstration and preferably a video to show the benefit of the upgrade.
You can read about more ways to improve your customers' lifetime value over at Entrepreneur.
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