How Much Are You Willing To Pay For A Route Customer? Counter Customer?

And how do you base your decision on what to pay for a customer? Or are you WAG’ing* it?

Let’s say that I’m in the business of selling dry cleaning customers. And you want 30 route customers per month and 75 counter customers per month. What would you be willing to pay to get those customers? Oh, and I’ve got cheap customers, difficult customers, average customers and “the best” customers. You can buy any and all you want.

I can tell you what I’d sell them for (because I own the store) and justify it so that you’d be lining up around the corner. I suspect you’d like my “best” customers. Because of the quality, they’d cost a bunch more than the “cheap” and “difficult” customers, but they’d be worth it.

So let’s get to figuring out how much the Lifetime Customer Value (LCV) is with your dry cleaning customers so that you will know what to pay for them. I’m going to use route and counter spending habits that are actual numbers from one of my members. David’s average route customer generates $81/month. His average counter customer is $58/month. You can use your exact numbers to get to the real LCV of your average customer.

Let’s talk about the LCV of a route customer first. He spends $81 a month and we’re thinking he’s going to stay around for 2 years. You and I both know that route customers stay around for much longer than 2 years, but lets low ball this so the numbers come out conservative. And let’s say that your net profit is 22%. And if it’s not (and your not a discount shop), I can show how to get it to that point. If you’re a healthy dry cleaner, that’s where your net profit should be. I have several members that generate over $3,000,000 in gross revenue that have net profits exceeding 20%.

So let’s take a look at the numbers:

$81 x 12 months = $972
$972 x 2 years = $1944
$1944 x .22% profit = $427.68 in NET Profit over 2 years

So this is saying that the Lifetime Customer Value for David’s route is $427 per customer. Now David knows how much of a budget he has to go after new customers. He’s not going to spend the whole “kit and kabootle”, but only a portion of it. And David knows very well that this is a low LCV based on the number of years that a route customer stays with him. Heck, I’ve got about a 100 route customers than have been with me for over 15 years.

The next thing you have to make sure of is that you can measure your advertising cost. If you CAN’T measure it, what’s the sense? Image advertising does not work for small businesses like ours. Branding does not work either. And if some 23-year-old advertising sales rep tells you that it works, don’t believe him. Direct Marketing will work the very first time if it’s going to work. If it doesn’t, you’ve got to change the headline or the offer or the copy or maybe all of it. Anyway, let’s get back to the Lifetime Customer Value of a dry cleaning customer.

Let’s take a look at the LCV of a counter customer:

$58 x 12 months = $696
$696 x 2 years = $1392
$1392 x .22% profit = $306.24 in NET Profit over 2 years

You’ll have to take your exact average route and counter customer’s monthly averages to figure out what your Lifetime Customer Value is.

Back to David. He just bought a route and it cost him $220 per delivery customer. Most of the customers from the route he bought came from referrals and they were with the dry cleaner for 18 months or longer. Was this a good deal for David? I think it was a great deal. He’s going to recoup his investment in net profit in just over a year.

So I asked David, “What would you spend for a route customer?” He said that he’d easily pay up to $150 for one in advertising dollars. Based on that, David has the ammunition he needs to move ahead with his advertising budget and so will you.

David is very good at keeping his customers. How are you? We’ll talk about that in the coming months.

Comment below: What are you willing to pay for a route customer? Counter customer?

*Wild Ass Guess is WAG’ing it!

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