Relationship Marketing: Are you a Shepherd or a Farmer?

by | Jul 16, 2009 | Building Relationships, Marketing & Selling

Relationship marketing emphasizes the long-term value of your clients and customers. Here’s one way you can calculate how much a new client is worth to your business over the typical “lifespan” of a client:

First, collect this data:

A = What is your average sale price?
B = How much does it cost you to create that product/service?
C = How much does it cost you to acquire a new client?
D = How often do your customers purchase per year?
E = On average, how long do customers stay with your company?

Now follow this formula:

(A – B) x (D x E) – C = Lifetime Value

So, let’s say your average sale is $50 and it cost you $10 to create that product. Then, it costs you about $10 to acquire a new client who purchases from you three times a year over the span of 5 years. Plug those values into the formula and you get:

($50 – $10) x (3 x 5) – $10 = $590

So, as you can see, if this was your scenario, each new client would be worth $590 to your business. Some marketers also add in the referrals each of these people bring in, but that could lead to double counting.

So now which would you rather be: a shepherd or a farmer?

A shepherd nurtures his flock retaining each sheep for a long as he can, therefore producing more wool over time.

A farmer nurtures his crop until it is time to harvest and then start all over again.

When it comes to marketing, a relationship marketer is more like a shepherd, while a marketer who is purely focused on the one-time sale is like the farmer. I’m not saying one is better than the other … both have their place. And, as a business owner there are times when you will need to put on your farmer hat and other times put on your shepherd hat. But then you think of the long term strategies you want to use in your marketing plan, which strategies do you think will grow a more stable business?

 

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