National Clothesline

I never thought my new cleaner would blow off my business over a button or two, but he did and the funny thing is… he doesn’t even know it.

Not long ago, my friend Bob sold his cleaning plant. It’s only five convenient blocks from my house so I decided to try the “new guy.” I dropped off five shirts with drycleaning and picked everything up on my way home from work the same day.

Next morning I discovered that my shirt wouldn’t work. The top button was missing. Gone! There was no need to panic though because I knew I still had four more.

As it turned out, however, I had only two since two other shirts were missing buttons, as well. And we’re not talking hard-to-find, either. These weren’t cracked cuff buttons. In fact, one shirt was missing two buttons up front in the chest area.

I took the three shirts back to the cleaner and pointed out the problems. He stared at the shirts in disbelief. It seemed longer than it probably was, but I finally had to ask if he could fix them. He agreed, wrote up a ticket and I went on my way.

When I picked up the shirts the next day, he handed me the order and said, “That’s $1.50.”

I quietly paid the bill… and never returned to his store.

If you accept the premise that it costs about seven times as much to get a new customer as it does to keep one you already have, wouldn’t it make sense to try to keep every customer you’ve got?

My cleaner lost my business over a few shirt buttons. But, to solve the problem and keep my

business would have been simple and have cost him almost nothing. Literally pennies. Instead…

What did losing my business actually cost?

Well, first of all, he probably doesn’t even realize he lost me as a customer. You see, I’m the worst kind of disappointed customer there is — the kind that leaves without a word and never comes back. But that’s another story. In order to figure what it costs to lose a customer, you must first understand the concept of…

“the lifetime value of a customer.”

Lifetime value can be defined as the total dollar value of your average customer over the entire period they are likely to do business with you.

To calculate the lifetime value of a customer, you must first determine how long your average customer stays with you. Let’s say it’s three years.

Next, take your sales figures and calculate your net profit for that same three-year period — $150,000.

Finally, estimate how many steady customers you have (i.e., 1,000). Bear in mind that these figures will be easy to arrive at if you keep your records on computer.

To arrive at a lifetime value, divide your net profit for the three years by the total number of steady customers. In this case...

$150,000 divided by 1,000 = $150

This formula will indicate what an average customer is worth. Plug in your own figures based on the records you’ve kept and see what your average customer is worth.

So, once again, what did it cost the cleaner to lose my business?

Well, if I was an average customer in the hypothetical example above, losing my business would have cost the cleaner $150.

However, I took my cleaning to that same plant for four years before the new owner took over and, during the last year alone, I spent $487 for various services.

If you calculate similar expenditures for the previous three years, my new cleaner lost about $1,948 in potential drycleaning (assuming he keeps me as a customer and neither of us moves out of the area for the next four years).

Question: Do you consider your customers in terms of single transactions? Or do you see a dollar figure like $300 tattooed on their foreheads every time they walk through the front door and drop their order on your counter?

Being able to see the big picture will make a significant difference in the way you and your staff handle each transaction. Customers will become far more precious when you think in terms of lifetime value as opposed to just a single transaction.

If you truly understand this concept, you will not hesitate to spend a bit more to acquire a new customer. And you’ll be much more careful not to lose one.

Bill Bishop has been a consultant with the Golomb Group for the past 12 years, designing marketing and promotional programs for drycleaners. He can be reached at the Golomb Group at (800) 679-5856 or by e-mail at billbishop@golombgroup.com.