Highest Profits - How To Increase Profitability Per Customer

The majority of the value in your customer is in the sales after their initial purchase.

Most business owners and managers know this. I’m sure you do. However, not many people really appreciate the life time value of their customers.

When you know the true life time value (and profitability) of your average customer then you know how much you can afford to spend on marketing or special offers in order to attract the first purchase.

YOUR HIGHEST PROFIT WILL USUALLY COME FROM SUBSEQUENT SALES…

Let me give you an example:

Suppose you sold an electronic gadget that normally retails at £50. It costs you £20 to buy. When someone purchases that gadget you make a gross profit (GP) of £30.

Having purchased that one item you keep the customer informed of similar products through your direct response marketing; sales letters; newsletters; web page etc. They buy another piece of equipment at £150, which costs you £80 to buy. That gives you a GP of £70.

So far you’ve made £110. Now, let’s say he purchases an item for £230, which costs you £110 to buy in. That’s another £120 to add to your GP from that one customer.

Suppose he only buys one more item from you at £320, which costs you £180 at source: your overall GP is now £370.

Now you have this information you can make an educated decision on how you encourage the first purchase. In fact you could afford to offer your first electronic gadget at a ridiculously low price, i.e. cost or even below; knowing your marketing method - regular, informative contact - encourages more sales on which you can make your profit.

So, if you offer your first gadget at £21 instead of £50 as a ‘special offer’ you probably have a higher response of people purchasing than you would if you tried to retain your profit margin on the first sale.

Don’t forget, it’s the follow-up nurturing that creates your full life time value.

The thing is, would you rather have 20 sales at £21 with the likelihood of further purchases creating a good gross profit for you? Or just 3 sales at £50 and no follow on sales?

If you have never done this exercise before, I strongly recommend that you do so, before you start any marketing campaigns.

© 2004 Carol A E Bentley

Extracted from the book 'I Want to Buy Your Product... Have You Sent Me a Letter Yet' (How to create powerful sales letters, advertisements, flyers, brochures, web pages and newsletters that persuade hundreds, or even thousands, of additional customers and clients to buy from you!) by Carol A E Bentley (Rated 5-star on Amazon.co.uk)

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