Realizing Lifetime Value – Insight Into Relationships
This past weekend, I mentored at a Startup Weekend in Asheville, NC. Seeing people form teams, practice their pitch, and and get their first customers made me look back at a few similar events I’ve attended over the years and the value that they’ve created.
There was the prospect I’d met at a tradeshow 5 years ago who didn’t end up becoming a customer, but later invested in a startup I founded. Then there was the nonprofit event I attended as a volunteer, and ended up meeting a fellow volunteer who would later become my largest customer. Then finally, I landed at Revelry Labs because I became friends with the other founders in an accelerator program I attended almost 4 years ago. So what’s the point?
You never know what can come of meeting someone new if you only view that relationship for its immediate or short-term value.
In his book PeopleWork, Chris Smith tells a story about the Starbucks experience. Why do people tweet photos of their pumpkin spice latte and remain loyal patrons year after year? It’s because Starbucks understands the Lifetime Value of a customer. Although the average purchase is under $7, the lifetime value of a customer is $15,000! Starbucks makes sure its employees, service, and consistently good experience reflect that they know you are a $15k customer. When you walk in the door at one of their locations, Starbucks isn’t looking at you as a one time sale, but a lasting relationship.
Why would any of us treat our own relationships any different? Surely the lifetime value of many of your business relationships is higher than the lifetime value of a Starbucks customer.
Businesses often fail to see the long-term value of a relationship, let alone customers. So many negotiate every ounce of profitability out of a deal or go for the hard sell, but often at the cost of building a strong relationship. They don’t follow up or keep in touch with people they meet because they think “This person can’t help me” or “It’s not a good fit”, but this is a short-term way of thinking.
Today’s business world changes so fast, someone you know could be a competitor at one job, a customer at the next, and then a prospective hire at the next, all in the course of just a few years.
Here’s my advice to the participants from Startup Weekend and any business that wants a long term strategy for success:
When meeting a potential a new customer/employee/partner, don’t just think about how you might work with them today. If you think about where that person will be in 1, 5, or even 10 years, ask yourself- What’s the potential lifetime value of this relationship?
You’ll probably determine that it is worth much more than just closing that first deal. And you’ll probably make some great friendships along the way. Your best relationships are long term and don’t pay off overnight. Invest accordingly.
What are your thoughts? Hit me up on Twitter and let me know.