In a previous blog, I shared several subscription models because they, like any model that encourages repeat business, offers an opportunity to increase the value of your business by making increasing the value of each customer and client. When you structure your business around the Lifetime Value of Customers (LVC), it allows you to make product/service and marketing decisions you otherwise would miss. Let me share an example.
Jay Abrahams tells the story of how he increased sales and revenues for Icy Hot, a consumer product people use to reduce pain. At one point, the company advertised on radio and gave the radio station of a commission on each $3.00 jar. Jay asked the company to evaluate what the lifetime value of customers were, and the company reported that in fact, customers tended to buy as many as seven jars after the first!
Since the cost of the product and jar was negligible, he then recommended they re-package the value proposition for the radios – they would get to keep the entire $3.00 price for each jar sold. Why, because within two additional sales, the company was already making a substantial profit! As a result of the shift in marketing approach, company sales and profits skyrocketed.
Amazon Prime offer a second example. By offering customers the opportunity to engage in an annual subscription, it increases sales and revenues. As Vijay Ravingdran, who worked on the team that launched Prime at its original $79 said: It was really about changing people’s mentality so they wouldn’t shop anywhere elseâ€. Morningstar’s research found that the average Prime member spends $1224 on Amazon purchases each year compared with $505 for non-Prime customers. While the company “loses†money on the fee, if there are substantial streaming costs and additional shipping charges, Prime customers actually yield $78 more per year in profits than the typical customers. Why? For some customers have an incentive to shop there rather than somewhere else. For others, Amazon is now top-of-mind to its subscribers, making it often the first place to buy. And with a high repeat subscription rate, the company can monetize the value of its customers at a higher value.
So, what’s your business’ LTC? What have you done to increase it? What can you to do increase it? Share your experiences with us.