by: Sheri Blaho
This is the last of my blog series on the seven pressing questions every distributor should know. Our final question is this:
- Do I know the lifetime value of my customers?
The standard response I receive on this question is: "What does this have to do with inventory?" EVERYTHING! I cannot begin to emphasize the value of understanding your sales potential with your existing customers. The cost of acquiring an new customer is extraordinarily high compared to the cost of retaining existing customers. Factoring in the minimal inventory level requirements for your "A" customers should be considered when determining your overall stocking philosophy. You want to ensure the satisfaction of every "A" customer by have the right stock available for them every time (or pretty darn close)!
Understanding the true value of your customer allows you to put the management of your inventory into the correct perspective: Sales are Number One. Calculating the lifetime value is fairly easy:
(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer)
Once you know how frequently a customer buys and how much they spend, you will better understand how to allocate your resources in terms of customer retention programs and inventory management controls you’ll need to keep your customers -- and keep them happy.