Inbound Marketing Strategy

How to Cure Low Sales by Increasing Customer LTV

Brad Smith
October 2, 2013

Hotel Tonight is a mobile hotel booking application that allows users to make same-day reservations in over 1,500 hotels at low, last minute prices.

Good for the consumer because they get a good deal. And good for hotels because they salvage their expiring, unused rooms.

Sam Shank, co-founder of Hotel Tonight told This Week In Startups that based on survey data, 91% of guests are new.

That means Hotel Tonight is a powerful new channel for hotels looking to reach new customers. But it gets better.

Hotels (anecdotally) have told Sam that not only are these consumers influential (as early adopters who broadcast to everyone else), but they are also spending more money on property.

So they’re able to recover prices on additional offerings like food and beverage. Or they can get these new customers in their loyalty programs and get them to make another reservation in the future.

Which is the first step to significantly increasing revenue at any company.


How to Instantly Increase Sales By Focusing on the Lifetime Value of a Customer

The first place you should always look to increase revenue is by selling more to existing customers or clients.

Not chasing new ones, prospecting or pursuing new partnerships.

Overdelivering (or what David Maister calls “Superpleasing”) then becomes a business development strategy, because you’re focusing on making the experience so wonderful that the customer can’t even think of going anywhere else.

And you’re locking in customer loyalty at the same time.

eCommerce giant Amazon is great at this. They’re disrupting traditional brick-and-mortar retail as we know it. One of the big reasons is because of their Prime customers, who are worth an incredibly amount to the company. According to Wired and a report from analysts at Morningstar and Consumer Intelligence Research Partners (CIRP) (emphasis mine):

“Amazon started its fiscal 2012 with a little fewer than 7 million Prime members and ended with nearly 10 million, largely thanks to the free Prime promotion that comes with the purchase of the company’s bestselling Kindle Fire. That increase alone represents a huge coup for Amazon, an awesome display of locking in customer loyalty. As the report points out, those millions of people spending $79 each are all incurring a major “switching cost” — in other words, since they’ve shelled out so much to enjoy special privileges for shopping at Amazon, they’re less likely to shop elsewhere.”

“Amazon’s average operating income last year per each of its 182 million total customers came to less than $10. In other words, every Prime member is about eight times as valuable to Amazon as a non-Prime member. Put yet another way: More than one-third of Amazon’s profits before interest and taxes came from fewer than four percent of the people who buy stuff on Amazon.

“They have hit on a means of creating some very, very valuable customers,” says Michael Levin, a partner at CIRP.”

This simple calculation shows just how valuable customer loyalty is to Amazon — about 8 times as much as a typical consumer.

It reveals a simple 80/20 principle that’s almost always present, where a majority of your revenue comes from a small group of customers or clients.

But this also highlights one key shortcut to growing your business…


The Simple Shortcut to Getting More Profitable Customers in Record Time

When increasing the lifetime value of a customer becomes an integral part of your marketing, then there’s one simple mantra you should keep in the back of your mind…

Get them to spend their first dollar.

Somehow, someway, you need to provide something that’s easy to understand, and easy to purchase.

In most cases, you can even create a new lower level product that didn’t already exist. (That’s one (of several) reasons why I’ve started creating more premium courses and training programs.)

Looking at Amazon, they came out with a low-priced membership with the sole goal of improving customer loyalty and increasing repurchases.

Or you can find another channel to make some existing offering available at a discount for a limited time. Hotel Tonight only makes rooms available at Noon each day, so price-conscious customers can’t price shop until the very very last second.

If you have high priced services, then you can also sell the diagnostic. You can research and scope their problem for a fraction of the price. Then they can solve it themselves, or bring you on to help. (In this case you’re also disqualifying bad leads who have no intention — or authority — to purchase.)

No matter which approach you choose, the result is always the same. Get them to spend their first dollar.

And then restructure your organization (everyone from Operations to Customer Service) to overdeliver on every account.

Because the easiest way to grow a company isn’t to always to generate new leads, but to grow them from within.