4 Ways to Calculate Client Value and Grow your Business
Not all clients hold the same (potential) value when it comes to your business. So it’s important to consider why you might be handling a client you only see twice a year, the same way you are handling a client that comes in every week. Developing service standards based on existing and potential client value is a logical thing to do, if you want to do more of what is working, and less of what isn’t.
In a nutshell, your client value plan might be to:
1. Develop life-long relationships with your best clients
2. Continually strive to convert good clients into great ones
3. Deplete clients who have low value and no upward potential.
What is your philosophy on VIP service vs. non-VIP service…have you identified that? How can you maintain service excellence and still take into account that your client base is made up of 3 or 4 tiers of value? Do you believe every client should receive the same perks, advantages, incentives and benefits, no matter what value they bring to your business?
You may be saying to yourself ‘I don’t need to make this another plan, our clients grow with us naturally’. But isn’t that like saying ‘I don’t need to know my garden conditions or fertilize my plants, they’ll survive’…?
These 4 models vary in their approach, but the ultimate goal is the same…know the value each client brings to your business, as well as their upward potential, so you can maximize greater opportunities for growth.
1. The ‘ABCD’ Method
We see many custom adaptations of this model, but it’s really just ‘marking’ your clients on their performance, just as a teacher would mark their students.
‘A’ Rank– This ‘bread and butter’ category is made up of your best clients. They visit regularly and often; they have a mid to high dollar spend that is always on the rise; they use, recommend and purchase your products and services for themselves, their friends and their family; and they are not overly demanding. These are the clients that you want to ‘lock in’ as life-long clients with your spa loyalty programs. They deserve preferential treatment and premium handling.
‘B’ Rank– This ‘growth’ category may hold the greatest opportunities. Their value in all areas is less than the ‘A’ Rank clients, but these clients are still very good and it is well worth your while to explore their upward potential.
‘C’ Rank– This ‘watch’ category needs close monitoring, as they can toggle either way. They may appear less desirable, be more price sensitive and less appreciative, BUT…they could also be just getting to know the spa world, still needing to learn the ropes.
‘D’ Rank– These clients are a plain old nightmare and should be de-activated wherever necessary. Their demands may be disproportionate to their contributions and they may not only be damaging employee morale, they may be discrediting your business.
2. RFM Model – Recency, Frequency, Monetary Value
Just how likely is it that certain customers could eventually become among the highest contributors to your business? The RFM model can help you determine which customers hold the most upward potential, based on current and historical data. For example:
Recency– A client who has come in this week may be ranked R1. A client who came in this month may be ranked an R2, and a client who came in, in the last 6 months, may be considered an R3.
Frequency– A client who comes in weekly may be ranked F1. A client who comes in monthly may be ranked an F2, and a client who visits twice annually may be considered an F3.
Monitory Value– A client who spends $500+ per visit may be ranked M1. A client who spends $250+ per visit may be ranked an M2, and a client who is spending less than $100 per visit may be considered an M3.
So your top tier client is an R1F1M1. Your mid tier client is an R2F2M2, and so on. By analysing this data, you can determine where your opportunities lie for cultivating better customers; or where your current system of ‘client handling’ may need to be re-assessed for better business outcomes.
3. Data mining to find those ‘most likely to buy’
I read an interesting article that came to us through ISPASmartbriefand Inc. Magazine titled “How to Find New Customers“. This is a very worthy piece of the customer handling process, concentrating on self-discovery and who it is that you can really help the most. This could be a very useful exercise to help you gather serious/core clients, prior to launching a specialized treatment line or service regiment.
1. Identify your customer– Your best customer is the one who feels the greatest improvement in their emotions when they purchase your products or services. For example, is your ideal target the woman who feels more beautiful and youthful when she uses your skin care creams; or is it the woman who only buys the best, because she believes high ticket items must mean results?
2. Define your ‘market differentiation’– When you know who your ideal target is, consider your uniqueness. Your ability to identify and convey your advantages to your ideal client makes it much easier to sell your offerings to them. You have to remember that they could just as easily choose to go elsewhere to feel beautiful and youthful, if they don’t understand the benefits you offer.
3. Narrow down your very best prospects– A tighter target is more likely to make more sales than a broad focus.
4. Focus on your final list of prospects– Here’s where you concentrate your energy. This list is now comprised of only those who feel the greatest emotional improvement and clearly understand the benefits. They are therefore ‘predisposed’ to purchase from you.
4. Segmentation by Client Lifetime Value (CLV)
You can also base client handling decisions on the current dollar value of your clients, as well as what that might equate to if they were to remain a lifetime client.
Define client value by tracking their average spend per visit, multiplied by their number of visits annually, for example: $250 per visit x 12 visits annually = $3,000 in sales annually. To determine what CLV looks like, multiply the $3,000 by 20 years = $60,000 CLV. Add to that what you expect from them annually in terms of referral business, gift giving, participation in special promos, cross-departmental sales, etc., to arrive at a final CLV amount.
Then take this model one step further, and examine not just dollar value; but profitability. As a naïve example; if this client is consistently purchasing a manicure, pedicure and basic facial during that $250 visit, 12x annually, you may be disappointed when you realize that her services all have low profit margins. Her $ spend is good, but her bottom line contribution to the business is not. Therein lies some very important data for the savvy spa owner/manager, to take action on.
Now, mobilize your Client Value Plan..
Develop a 3-step activation program:
1. Let your staff know who your top clients are
2. Train them on how to sell more to your best customers
3. Educate them on how to recognize those clients who hold greater potential.
Make increasing client value, a new way of doing business.
Is it time you join the 100′s of global Spa Owners and Managers who follow the Spas2b proven standards for success?