In light of the United Airlines passenger video, leggings-gate and his own recent bad experience with BMW customer service — in today's episode of the Transition Guy, award-winning Business Transition Coach, Peter Boolkah discusses Acquisition Cost vs Life Time Value of a Customer.
Hi, Peter Boolkah here, and welcome to today's edition of the Transition Guide, where we are going to be looking at acquisition cost versus lifetime value of a customer. As a business owner, the most important thing for you, is to be able to sell your product or service to somebody.
Yeah, if you can't sell yourself to anybody, you're not in business, because you've got to be able to monetize what you do. If you actually thought, and actually stood back and did some calculations, how much it actually costs you to acquire a client, a customer, what is the total cost? I don't mean a lead, because yeah, you could say, “Well, my lead is this.” I'm talking about the entire sales process, until that person starts spending money with you.
Now, go and do that exercise, because I promise you it will be quite a revelation. Once you've done that exercise, ask yourself the question, “Now, you've got that customer, now they're starting to spend money with you. How much are they going to be worth to you over their entire lifetime?” The reason I ask these questions is because too often, we do not think long-term relationships, we just think the here and now.
The reality is, if we look at the economy in which we operate today, we operate in a high trust based economy. At the end of the day, there's no point acquiring a client, if you don't want to take them on that journey. You could spend forever just going out trying to find, trying to find, trying to find new customers, trying to put up their trust for them to spend money with you. Then not to take that a stage further is an absolute travesty.
Now, an example I want to share with you, where perhaps short-termism can have a massive negative impact.
We all love our cars. Me especially, I love driving cars.
For the last 20 years, I have been a very loyal member of the BMW club. For those of you that do not like BMW, I apologize now, but that's just the way it is.
Over a 20 year period, I've had seven BMWs.
You can imagine a BMW being the car that is, they're not necessarily the cheapest cars, and my current BMW is a Seven Series. Now, you would expect from a company like BMW to have impeccable customer service. They actually think of the long game. I'll give you an instance perhaps, where BMW had not been so forward thinking, and actually quite short-term in their outcomes. Recently, I've had the misfortune of having to put my car in to have some warranty work done.
While they were doing the warranty work, they checked my car over, and they happened to find two cracked wheels at the back. Car's no more than two years old, still within it's warranty, and they're really small minor cracks.
They said to me, “The wheels need to be replaced.” Automatically, what happens, alarm bells start ringing.
“What do you mean the wheels need to be replaced? It's only a two year old car.”
And the fact that it's a Seven Series, it's designed to really be driven on the roads. It's that kind of car, it's a workhorse. I asked them the question, “How did they get damaged?” “Well,” they said, “It's the roads.” And they said, “Yeah, it's just the roads, you've had a bad winter, it's pothole damage.”
Yet on the wheels, there were absolutely no visible impact marks. I asked the question at the end of the day, “Okay, if it's road damage, surely you should be providing vehicles that can withstand the roads in which people have to endure.”
At the end of the day, roads are roads, okay? There are going to potholes, there are going to be small dinks, build a car fit for purpose. I challenged him on this, and asked him the simple question being that, “If it was pothole damage, number one, why was there no visible impact damage, and number two, why was it just the two rear wheels that were cracked? Surely if I'm going to go over a pothole, the impact would be on the front wheel, first and foremost, where the engine is, and where the car's the heaviest.”
They said, “No.” Basically, what they were trying to eschew, and intimate, the fact that probably I was driving very high speeds in reverse, reversed over speed humps, and then stopped instantaneously, preventing the front wheels from being impacted any way, shape, or form. They did their tests, et cetera, and what they come back with? “It's outside of the manufacturer's … the manufacturer's all fine, the defect, well, is impact damage, is road damage. You're going to have to get it replaced.”
Am I disappointing as a BMW customer? Absolutely. I'll tell you what really disappoints me, is they're not thinking the long-term game. You think about seven vehicles, a couple of them being sevens, they're not the cheapest cars on the market, yet all of a sudden, none of that came into consideration. They weren't thinking relationship, do you know what they were thinking? You can pay 1,500 quid. The fact that the wheels will probably cost BMW, what £600 to replace under warranty, didn't come into consideration.
When I started looking on the forums, guess what I saw? Many BMW's drivers are having challenges with alloy wheels. It's not just an isolated incident. The moral of the story here is basically, do you know what? BMW are now going to continuously send literature, send literature, send literature, market, market, market, and now it's probably going to cost them five times what it would have cost them to repair the wheels before I would even consider them, because right now, I'm properly mad.
Actually, when you look at other companies, there are instances where maybe Mercedes with their S-Class drivers wouldn't really treat their clients the same way. You got to think in your business, how do you play the game with your customers? What I mean by that is, are you thinking long-term relationships, or when you get challenges that are thrown at you, are you thinking customer service, or are you thinking money? Short-term, long-term. Another instance where this is played down, this is actually happened this week, is with the whole United Airlines debacle.
Those of you that read the news, you've seen what's happened. An Asian doctor was seated on the plane. What happened? They wanted the seat to be released, because they needed to put someone else in that seat. The passenger wouldn't voluntarily give up their seat. Why would you when you are seated, your luggage is in the hold, and you perfectly paid for that seat? How did United deal with it? They got their TSA police involved, they came onboard the plane, and they removed him.
Their strategy for dealing with the problem was beating the shit out of the customer, at the end of the day, for it to be videoed by people, and made viral. Now, you can imagine how much money does United Airlines spend on marketing and advertising trying to entice people onto its flights? Millions, and millions, and millions.
By one act of stupidity, and actually it's more than one act of stupidity, because there'd been in the news recently banning leggings on their flights, so they're not having a very good tenure at the moment, are they? You can imagine the leggings incident, so they call it Megan's Gate, then beating the shit out of the Asian doctor, things are not panning out too well for them, are they?
What do you think is going to happen to that lifetime value? Number one, the doctor's never going to fly United again. Number two, everyone that's seen the video is probably thinking how badly United sucks. They don't really want to fly fight club class, so they're going to start boycotting the airlines. The last time value, of not just that one customer is going down the toilet, but it's going to be other customers as well. Really I'm urging you as business owners, start thinking long-term strategy.
Start thinking about how you're going to take care of your customers, how you're going to maximize the lifetime relationship that you're going to be on the journey that you're going through. Start thinking lifetime value of a client.
Remember this, the longer you keep that client onboard, the lower your acquisition cost is going to be. If you don't want to service a client, guess what's going to happen?
Somebody else will, ie. your competition. That's the last thing you want. Why would you want, like United Airlines, to make your competition stronger? If they're getting stronger, you're getting weaker.
If you want to talk about acquisition cost within your business, and have you increase lifetime value of your clients, head over to boolkah.com.
Remember, failing to learn is learning to fail.