SMaC from “Great by Choice”

I have been reading “GREAT BY CHOICE” by Jim Collins and Morten T. Hansen and just finished  a chapter on SMaC that I felt was worthy of immediate sharing.

In this fast changing, globally competitive environment, the following quotes from the chapter are worthy of reflection.

SMaC stands for Specific, Methodical and Consistent.

“The more uncertain, fast-changing and unforgiving your environment, the more SMaC you need to be.”

“A SMaC recipe is a set of durable operating practices that create a replicable and consistent success formula; it is clear and concrete, enabling the entire enterprise to unify and organize its efforts, giving clear guidance regarding what to do and what not to do. A SMaC recipe reflects empirical validation and insight about what actually works and why.”

“Any company faces a constant struggle to find balance between continuity and change. No human enterprise can succeed at the highest level without consistency; if you bring no coherent unifying concept and disciplined methodology to your endeavors, you’ll be whipsawed by changes in your environment and cede your fate to forces outside your control. Equally true, however, no human enterprise can succeed at the highest levels without productive evolution.”

Specific, methodical and consistent are the key words for any enterprise and especially so in a franchise. Are you clear on your SMaC recipe? And equally important, are members of your team and your franchisees clear on the organizations SMaC recipe? In order for customers to receive a consistent experience and for the organization to achieve expected results, the discipline of implementing your SMaC recipe is essential.

Way too often businesses don’t look at their success formula (SMaC), making changes without fully understanding how re-arranging a puzzle piece or removing a puzzle piece leads to the puzzle falling apart.

At the beginning of a New Year, it may be time to re-visit your SMaC and share the vision with everyone in your organization.

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Final step: Making a commitment for success

 Choosing the right franchise for me

Final step: Making a commitment for success

“The only thing that stands between a person and what they want in life is the will to try and the faith to believe it possible.”

—Rich Devos

 

Thus far in our journey of the many hours of research and reflection of “Choosing the Right Franchise for Me”, we have examined the following:

Step 1: Having clarity on the reasons for joining a franchise

Step 2: Having self-awareness of your own strengths and weaknesses

Step 3: Building your franchise profile based on four areas: Personal factors, Business factors, Financial Factors and Organizational factors

Step 4: Selecting franchise companies and sectors to evaluate from thousands of choices

Step 5: Conducting a through 8-step evaluation of the franchisees selected

Step 6: Conducting a 3-step self -qualification and understanding the criteria franchisors are likely to use in evaluating you

 

Now it is time for major commitment. It is at this time that many people experience FEAR the most. The roller coaster of emotions ranging between excitement and anxiety will fluctuate on a daily and even hourly basis. While these emotions are natural at this time, you do not want them to dictate your final decision. If you have built an accurate profile (Step 3) and done your evaluation (Step 5), you are less likely to experience wild fluctuations in your emotions.

As a final confirmation of your choice, be sure you can confidently mark off the items on the following checklist:

  •   I like the business after having conducted a thorough evaluation
  • The business aligns with my profile by at least 70%
  •  I have adequate financial resources for the initial investment
  •  I have adequate financial resources to sustain the business until it generates profits
  •  I have adequate financial resources to support my family until the business generates a profit
  •  I like the people in the business and can see myself being able to work with them
  •  I feel confident that I can do what it takes to succeed in this business
  •  I am willing to follow the plan for the business as explained by the franchisor
  •  I have the necessary support from my spouse, family and friends to go into business
  •  I am committed to my own success

 

 

Operating for success

 

You join a franchise with every intention of becoming successful. Success does not happen just because you invested in a franchise. This is the beginning of the journey and various factors contribute to success including hard work, discipline, focus, customer service, product quality and attitude.

Here are some practical pointers to keep you on the right track of success:

1)    Refrain from re-inventing the wheel-don’t try to change the franchise system. The franchisor has created the franchise system after years of testing and development, without fully understanding how all the pieces of the system fit, your effort to make changes only hurts the growth of your business

2)    Leave your past on the curb-your past experience may be helpful but do not bring it up until you are successful. Once your business is doing well, you will figure out how your past experience can be leveraged to help grow the business further, until then follow the system and plan laid out by the franchisor

3)    Understand, believe and follow the plan completely-your job is to enthusiastically execute the full plan laid out for the franchise. Picking and choosing what you ‘like’ to follow or what you believe is ‘good’ to follow, may hurt your business, as you may not have a handle on the complete picture

4)    Respect the brand and the brand promise-anything you do that negatively affects the brand will adversely affect your business and the business of other franchisees. Customers expect a similar experience from one location to another. Receiving a bad experience at one location could stop them from going to any location of the brand and that hurts everyone

5)    Deliver ‘Wow’ service to create loyal customers-your business can only grow if customers get a great experience that prompts them to keep on coming back and telling others about your business

6)    Aggressively acquire and retain customers-keep focused on aggressively growing your customer base while ensuring that your existing customers stay loyal

7)    Build the right team-in order to consistently grow. A dedicated team of people with the right skills and right attitude are essential for a business to scale

8)    Watch the metrics-know the important numbers in your business and watch them with focus. One area of business success is making a profit and watching your metrics and keeping them in line will ensure your profitability

9)    Benefit from the power of the franchise-participate and collaborate. You will gain more from the franchise system when you participate actively and collaborate

10) Associate with winners-Be with people that want to win and succeed. Their enthusiasm, their attitude will likely be infectious, keeping you motivated to achieve your own success

 

Final thoughts

 

Many times I have been asked the question “Which is a good franchise to join?” My answer, that ‘there are many good choices but I don’t know which one would be right for you’ is not always satisfying because from the thousands of choices that are available selecting one that is right for you is a serious task. You cannot be swayed by what is the ‘flavor of the month’ or what your acquaintances consider a good business for them. The business has to be right for you.

Going into business is a noble undertaking and joining a franchise is rewarding in many ways. However, it is important that you choose a franchise that is right for you otherwise, no matter how great the business model, success will elude you. Go through the Franchise Mind™ 8 step process in choosing your franchise business.

Simply joining a franchise does not guarantee success. How you implement and leverage the opportunity that is in your hands will be an indicator of how successful you are likely to be. The 10 success factors outlined above have been compiled after years of observing franchisees that were both wildly successful  and those that remain in a constant state of struggle.  It is up to you.

As Author Seth Godin says “Go! Make something Happen”

May success be all yours!

 


Qualifying for a franchise

Choosing the right franchise for me: ‘Qualifying for a franchise’

In our previous article we addressed evaluating franchise companies. Once you have completed your evaluation of a franchise company and believe that it is the right fit for both based on your business profile, you must ask the crucial question, “Am I qualified for this franchise?” The franchisor will use a process to qualify you, however, you should go through your own analysis to ensure that you are indeed qualified for the franchise.

There are 3 areas that require your careful consideration:

1. Financial Have a clear understanding of the initial and on going financial requirements for the business. Be willing and able to make such financial commitments. Additionally, you should make provisions to take care of your family finances while you build the business. Understand and plan for the amount of time it will likely take before you are able to withdraw any money from the business in the form of compensation.

2. Time commitment Each business requires a time commitment of the owners both initially and on an on-going basis. Have a clear understanding of the time requirements to operate the business in the franchise of your choice. Business demands may be much greater in the initial stages as you are learning and building a new business. Be comfortable and willing to make the necessary time commitment.

3. Success elements For the business of your choice clearly understand what you must do in order to succeed in that business. With that understanding look at yourself honestly and be sure you are able to execute on the key elements as required by the business.

Franchisor qualification process Generally there are seven areas that good franchisors look at in qualifying candidates:

1. Basic qualification requirements of:

• Financial ability

• Education

• Experience

• Skills

2. Entering the business with realistic expectations as to:

• Investment

• Sales potential

• Profit potential

• Operating requirements

• Sales and marketing requirements

• Time commitment

3. Maturity and emotional fortitude

You should have the maturity to be in business and the emotional fortitude to handle the ‘ups and downs’ as well as the multiple priorities a business brings. In other words, you will not unnecessarily panic when things do not go per plan. Franchisors look at your ability to stay the course and remain “drama-free”.

4. Vision alignment

You share the company vision for the customer and that you will follow their prescribed plan for sales and marketing and in growing the business. For example, you believe that the business model should be delivery based, however the franchisor believes that it should be a sit-down restaurant. This non-alignment of vision will create problems and may be a disqualifier.

5. Communication

Your ability to communicate effectively with the franchisor speaks to your ability to communicate with your customers and your employees. Franchisors look for candidates that will succeed in building units.

6. Responsiveness

Franchisors have the right to know what kind of person you are before granting you a franchisee. As such, you will need to provide information that is personal and confidential in nature. This information is to ensure that you are qualified and that you will have the greatest chance of success. Be accurate, be timely and do not ‘make the information “look good” just to get approved.

7.The interview

The personal meeting also known as Discovery Day with senior executives of the company is critical to the qualification process. Create a favorable impression in such a way that the franchisor ‘wants’ you to join their franchise system.

Pay attention to dressing professionally, being prepared to ask and answer questions, being on time and reconfirming in your own mind that this is the company you want to join and these are the people you want to work with on a daily basis.

Final thoughts

Qualification is a two-way street. In your mind you must feel comfortable that you are qualified and can succeed in this franchise. The franchisor is also qualifying you. It is when you and the franchisor jointly decide that it is the right fit for both that the greatest chance of business success occurs. This way you will have the confidence to know that you are well suited for the business and will proceed with the attitude of success.

In the last article of this series, we will address making a commitment to the franchise and tips on operating for success.


Three levels of customer service experience leading to Loyal Customers

 

Creating Loyal Customers

Three levels of customer service experience

Loyal Customers

ARE YOUR CUSTOMERS EMOTIONALLY ENGAGED WITH THE BRAND TO THE POINT OF RETURNING FREQUENTLY AND RAVING TO OTHERS ABOUT THE BRAND (without being asked)?

Most businesses would agree that it is less expensive to retain existing customers than to go through the effort and expense of constantly bringing in new customers. Yet surveys show the following patterns when customers are asked why they leave a business:

  • Dissatisfied with service                           14%
  • Believe you don’t care about them          68%

A total of 82% of customers leave a business due to factors the business can control, but does not. Franchise Mind™ shows you three levels of customer service experience as perceived by the customer and how getting to level 3 will ensure a LOYAL CUSTOMER.

First, I’ll offer an anecdote on customer service: Several months ago, my son was having friends at home. As any parent with teenagers will attest, one of the favorite food groups at that age is pizza. In order to feed my son and his friends, we went to a carry out pizza franchise location nearby our home to order three large pizzas and three bottles of soda. The uniqueness of this pizza company was that certain varieties of pizza were always ready, so you could walk-in and pick up what you wanted without pre-ordering.

We walked in and requested the three pizzas we wanted and walked over to the refrigerator to pick up the three bottles of soda the boys wanted. In scanning the store environment, here are some of the things I observed in less than 1 minute:

  • Glass entry door had many smudges
  • The door mat at the entrance was dirty
  • Some of the lights in the store were not functional
  • While the employees in the kitchen were working, their non-work related conversation could by heard by all of us in the lobby of the store

Then came our turn to pay. The employee could only be identified such by the name tag on his shirt—he was not wearing a uniform. Without much of a greeting or conversation, he gave us the total for our order and we paid. At this point he began to package the three soda bottles, one bottle per plastic bag. This is when I was flabbergasted: one bag had the logo from the pizza chain, the other two bags were from two different grocery stores in the area.

As we outline the three levels of customer service experience, keep this pizza chain experience in mind and how it connects to each of the levels.

 

Level 1: A Neutral Customer

At this level, the customer’s basic expectations are met. In essence the customer is saying: ‘I gave you money and in exchange you give me a product or service that is of good quality and a trouble free transaction.’

At Level 1, the customer is classified as a neutral customer, because they feel no loyalty towards you and could easily leave you for another business.

In the pizza example, in exchange for my money, I received the pizza and soda as requested.

 

Level 2: A Happy Customer

Once a customer likes the product or service at a business, they begin looking for more from the business. They want to have a good experience. They want to feel good about the business, and at this stage it becomes about the ‘little stuff’ that has nothing to do with the product or service, but rather about the environment.

At this level, the customer is classified as a Happy Customer: they are seeking justification to become a repeat customer for your business and your business environment can help or hurt their cause. A Happy Customer will tell others about your business if asked. A majority of businesses remain at this level, where they have earned repeat customers, but not loyal customers. They manage to have a trouble-free transaction for the customer while maintaining a decent environment.

In the case of our pizza chain, the chain failed at level 2 on many fronts: from a dirty front door, the dirty door mat, employees conversing loudly, non-functioning ceiling lights and the packaging of the soda. For them, I remain a Level 1 customer. Aside from hosting a large group of teenagers, we don’t frequent that pizza chain.

 

Level 3: A Loyal customer

Reaching Level 3 and earning a Loyal Customer requires work. It is beyond a good product and service and a pleasing environment. In order to have the customer’s loyalty, the customer now expects you, the business to earn it. Here we draw on the six influence factors taught by Anthony Robbins and adapt them to the Franchise Mind™ Creating Loyal Customers model.

It is important to recognize that while the business must work on all six influence factors, customers will place different priorities in the six factors.

The six influence factors are:

  1. Customers look for certainty in their experience. The easiest way to ensure certainty is to have a consistently successful level 1 and level 2 relationship with the customer. This means consistently delivering on your product….etc.
  2. While we are all creatures of habit, once in a while we also look for good ‘excitement’ that adds spice to our experience. We look for positive uncertainty. The easiest way to ensure uncertainty is through creative promotions that surprise the customer. For example…?
  3. We feel good when we are made to feel important by a business. This is called significance and customers want that experience to be repeated every time they go to a business.
  4. Customers seek to be connected and loved by your business: they want to be treated like family.
  5. Customers support a business that is showing progress either by growth of locations, new products, additional staff, etc.
  6. Customers want you to succeed, because they enjoy coming to you. However, they want the opportunity to make a contribution to your success by making suggestions for improvements and suggestions for new products and services. Create opportunities for customers to give feedback and ensure that their voice is heard.

It is when the six influence factors are practiced diligently and consistently by everyone in the organization, and with an attitude and spirit of serving, that success can be yours. It is not sufficient to be mechanical in implementing the six influence factors. For example, anyone can place customer comment cards in the lobby, but that in itself is not sincerely seeking contribution from the customer. There is no doubt that customer loyalty can be earned by implementing the six influence factors, however, without a culture of service it will become an uphill battle.

 

Final thoughts

“Aim for service and success will follow”                                                                                                                                  —Albert Schweitzer

If customers like your products and services, they want to see you succeed and are willing to help you succeed by:

  1. Coming to your business more frequently
  2. Spending more with you
  3. Making contributions for improvement and suggestions for new products/services
  4. Going out of their way to tell others about your business

In return the customer asks that you create an opportunity for them to be emotionally engaged to your business and their loyalty will be yours.

Understand the three levels of customer service experience and see how you can connect with the customer emotionally to build a relationship that leads to loyalty.


Why don’t franchisees follow the system?

We have franchisees that don’t always follow the system. They conveniently follow things they like and ignore the things they don’t, what should we do?

-Questions asked by several franchiser’s at a recent event in Malaysia

Thank you for your question.

The essence of franchising is to have the customer receive a similar experience from one location to the next. When franchisees don’t follow the system or are selective in their implementation of the franchise system there are two obvious impacts:

  • The customer does not receive a similar experience from one time to the next or from one location to the next
  • The franchisee will not be able to optimize their own results for sales or profits

These impacts need to be clearly communicated to the franchisee in as many ways as possible and as often as possible.

Why does this happen?  Why do franchisees sabotage their own success?

There could be numerous reasons, amongst them:

  • Franchisee does not fully accept the Company vision and Customer vision
  • Poor selection process by the company for recruiting franchisee
  • Expectations by the company are not communicated or not  communicated clearly
  • Lack of clear processes, policies, procedures and promotions outlined in the Operations Manual
  • On-going communication with franchisee is not focused on brand promise and importance of consistent systems
  •  Franchisee has not clearly understood the full impact of their actions on the performance of their location, as well as the impact on the entire system
  • Franchisee may feel that systems are not in place and as such they move to fill the vacuum by creating their own systems and processes
  • There is no system in place to channel ideas from franchisees to improve the business
  • The franchisor does nothing to ensure compliance of system standards

What should be done?

For the future, ensure you have a clear profile of your ideal franchisee and that you recruit smartly by adhering to your profile. In addition you have to review your initial training, your operations manual, and your on-going training and support to see where gaps exist that can be corrected to improve communication and to ensure that you have clearly articulated systems, processes and policies in place so franchisees are not tempted to fill the gap for you.

For existing franchisees, a serious conversation needs to take place to bring everyone in compliance to system standards. Franchisees need to understand what it means to be part of a system and the importance of all franchisees following the system. However, in order for this conversation to begin, the franchiser needs to ensure that all systems are clearly articulated and in place including whatever training that may be required by the franchisee and their staff.

Once you have communicated expectations, provided a methodology for the franchisee to follow and provided the training necessary for the franchisee and their team to implement, at that time the franchiser needs to protect the system by enforcing compliance to system standards.

Your system cannot grow if there is no consistency. The integrity of the brand is at stake, protect it.


Systematically Evaluating Franchise Companies

Choosing the right franchise for me

Evaluating franchise companies

 

Steps four and five in the Franchise Mind™ system for “Choosing the right franchise for me” are about selecting companies to evaluate and having a systematic approach for evaluating the companies selected.

There are thousands of companies spread across many sectors. How would you know which company is right for you?

In earlier articles, we have addressed Creating a Personal Profile which gives you an objective basis for analysis.

 

Selection

Franchise Mind™ recommends that you select no more than two sectors and a maximum of 3-4 companies in each sector for evaluation. This will provide you with enough choice without getting overwhelmed.

In making a selection, do not restrict your choices because of your opinions or opinions of others that are in your head without any basis of fact such as:

  • ‘I know nothing about…’
  • ‘That is a hard business’
  • ‘Employees are difficult to find in that business’
  • ‘There is no money to be made in that business’
  • ‘Many long hours’

Further, do not restrict your selection because the concept is either a local franchise company or a Master Licensee of a foreign company. Both types of companies have their pluses and minuses and you cannot pre-judge either. At this stage, be brave and explore.

 

Evaluation

Many people begin the process of evaluating franchise companies without knowing how and what to evaluate. At stake and at risk, for many, are their entire life savings being used to finance their new business. While evaluating a franchise may not be a science– in that all criteria for evaluating cannot be objective– you have a lot at stake, including the investment of both time and money. A systematic approach is required that helps you evaluate every franchise company consistently. To help you do this, Franchise Mind™ introduces an 8-step evaluation process. While you should begin the evaluation of all selected companies simultaneously, it is highly likely that you may never complete all eight steps for most companies as you will likely discover that some don’t match your profile in the preliminary stages of evaluation.

 

Step 1: Self research
Step 2: Franchiser knowledge
Step 3: Self experience
Step 4: Experience of others
Step 5: Match to profile
Step 6: Review of responsibilities and obligations
Step 7: Review franchise foundation
Step 8: Check FEAR


Step 1: Self research

Today, the internet allows anyone to gather information quickly. We recommend you begin your research of each company online, looking at the company website. Become familiar with the business concept, get some baseline information and a chance to process it before you begin receiving information from the company.

Beyond the official company website, we suggest you look for information on blogs and articles on the web to gain third party perspectives.

 

Step 2: Franchiser knowledge

In your first conversation with the franchiser’s representative, keep an open mind, listen and gather the following information:

  • An education on the industry and the special role this franchise company plays in the industry
  • An understanding of the concept
  • An understanding of what you have to do to succeed in the business
  • A good feel for the culture of the organization
  • An understanding of the values of the organization
  • Competitive environment and the value proposition of the franchise company
  • Support and training available for the franchisee

While you are listening, evaluate:

  • Does the franchiser have good knowledge of the industry?
  • Is the franchiser able to clearly articulate their competitive advantage in the market place?
  • Can the franchiser spell out for you what you need to do as a franchisee in order to succeed in the business?
  • Is the representative that you are speaking with passionate and excited about the company and the business?

 

Step 3: Self-experience

If you have franchise locations in visiting distance, take advantage and visit a few locations as a customer.  Experience the environment, service and products. Make notes of things you liked and things you didn’t, as they will become important to review as you get closer to decision time.

 

Step 4: Experience of others

Most franchisers would prefer that you speak to their franchisees at a pre-arranged time or with proper introductions, and most likely, only after you have been pre-qualified for the franchise. Respect their process as that will allow you to access a more cooperative franchisee.

We recommend that you speak with:

  • 2-4 successful franchisees to understand their experience and more importantly, what makes them successful
  • 1-2 struggling franchisees to understand what they are not doing, keeping in mind that they may not admit that they are not following the system prescribed by the franchisor

 

Step 5: Match to profile

In a previous article “Building a Profile”, we had discussed creating a personal profile based on four areas:

  1. Personal factors
  2. Business factors
  3. Financial factors
  4. Organizational match

Now is time to match the business that you are short listing to the profile you have created. While no company is likely to be a 100% match to your profile, it is important that you have at least 70% match with the company and that you are not compromising in the areas that are extremely important to you.

 

Step 6: Review responsibilities and obligations

Once you determine at least a 70% match to your profile, it is time to review the franchise agreement and any disclosure documents (as required in your country) provided to you by the franchisor. Even if the company has provided these to your earlier in the process, we strongly suggest that your review does not begin until this point.

The objective of this review is to understand clearly your responsibilities and obligations under the agreement. You are about to enter into a long-term relationship and you need to enter this relationship not only with your eyes open but also being totally comfortable with your responsibilities and obligations under the franchise agreement.

Do not be afraid to ask questions and seek clarification from the franchisor. At the same time, do not be afraid to seek advice from legal professionals who have a good understanding of franchising.

 

Step 7: Review franchise foundation

Any franchise company must have seven key elements. Ensure they exist in the companies you are evaluating as they provide you with a strong foundation enabling you to have the greatest chance of success.

  1. A good business and financial plan for you to enter the business and succeed. While no one can predict how well you will do, a well thought-out plan is a good start
  2. Protected trademarks and legal documents. Since you acquire the rights to use the trademarks during your term as a franchisee, make sure that the trademarks are legally protected. Generally, legal documents consist of a franchise agreement and other disclosure documents as required by law. A franchise agreement that is common for all franchisees should give you comfort that no ‘special favors’ are being meted out to franchisees
  3. An operations manual that outlines all the processes, procedures, policies and programs essential to your running of the business is a requirement. Without it, you will not have the ability to systematically operate the business
  4. Franchise training program that is formal and systematic
  5. Franchise development system, so you know that the brand you are joining will continue to grow
  6. Franchisee support program consisting of three areas of support:
    1. Support when you have a problem and need immediate help
    2. Support to help you stay focused on achieving your business goals and objectives
    3. Support necessary to help you grow your business and help you become more profitable
    4. Strong infrastructure, technology and supply chain to help you run your franchise efficiently, effectively and profitably

 

Conclusion

Throughout the evaluation process, it is likely that your emotions are going to be on a roller coaster divided between excitement and anxiety for a new venture. While emotions are natural, excessive emotions can lead to F.E.A.R., or False Evidence Appearing Real. This is when you magnify minor weaknesses and downplay your strengths. Unfortunately, many times this leads to paralysis and a lack of action in moving forward with starting your own business.

Aside from FEAR’s, watch out for well meaning advice and opinions of friends, family and advisers who have not spent time, like you, going through this 8-step process.

At the end, don’t let FEAR stop you from going into business. Go back to reminding yourself why you made the decision to go into business in the first place.

In the next article, we will address the qualifications necessary from you and the franchisor.


What is the life time value of a customer?

“The customer is the most important

visitor to our premises”                       

—Mahatma Gandhi

An experience 

The other day, my satellite receiver for TV programming displayed an error code. Upon calling the company, I was informed that the code indicated a fatal error and that the receiver would have to be replaced. The company was sending out a new receiver, which would arrive in two days, and I was to return the defective receiver.

The receiver arrived as promised and was self-installed with the phone assistance of the company representative. I was reminded to send the defective receiver back in the box provided. The problem was, there was no box provided. With apologies, I was told a new empty box would be sent so I could return the defective receiver.

The TV was working, I forgot about the defective receiver sitting in the garage, and the empty box that was supposed to come– never came. However, a jolting reminder came in the form of a USD 250 bill for the defective receiver. This is when the saga began:

The representative on the phone would not budge from the policy that I had to pay the bill, since it was my responsibility to send the defective unit back, which I couldn’t as instructions to return came with the empty box which I was yet to receive. In speaking with a supervisor, I got no further, and of course the company had no explanation or responsibility in why I had not received the empty box.

I went to the company website in hopes of venting to a different person and after considerable time found the page where I could provide “Suggestions.” I gave details and received an auto responder e-mail that ‘my case had been elevated to a supervisor and I would hear from them within 24 hours. I did, through another ‘auto’ e-mail letting me know the empty box at the center of this saga had been sent.

It took another month before the billing was removed from the account.

An experience like this makes you think: here I was, a customer for close to 16 years, spending USD 1000 per year. Was I a customer because I loved something about the company, or was I a customer because it was too much trouble to change to another company? I believe I have stayed all these years with Direct TV because it was convenient. But now, this experience has brought into question that the company is taking me for granted.

 

A case for understanding the lifetime value of a customer

All business owners and business executives will tell you that their business believes in good customer service. Furthermore, most believe that their business indeed provides acceptable customer service. It is when we probe at the policies and procedures of the organization that there is a recognition that the business is perhaps not as customer-centric as it would like itself to believe. The above story clearly illustrates the point.

As we also know from personal experiences, what is defined as good customer service varies from person to person. Sadly, many businesses treat customers as an ATM machine intended to maximize the withdrawal in one transaction.

Customer service in many ways is transactional in nature. In exchange for money, the customer expects to receive the product or service as ordered, free of defects or deficiencies, on time, and with politeness.

However, if businesses were to focus on Creating Loyal Customers instead of just providing basic customer service, then you would have a customer who is emotionally engaged with the business to the point of returning frequently as well as raving to others about the business.

This focus on Creating Loyal Customers requires a long-term view of the customer that many businesses are not prepared to invest in.

Business author and strategist Jay Abrahms says that a business can grow in three ways:

  1. By acquiring new customers
  2. Having customers come to the business more often
  3. Having customers spend more each time they come to the business

The fact remains, in a highly competitive world, a customer is not willing to come to a business more frequently or spend more money, unless the business is focused on creating a relationship with this customer. This requires the business to adopt a long-term view of the customer.

A focus on long-term loyalty requires a customer–centric culture in the organization as well as an acknowledgement by the business that a customer is worth far more to it than the value of one transaction. This concept is known as the Life Time Value of the Customer.

There are two aspects to looking at the Life Time Value of the customer:

  1. Direct Life Time Value of one customer
  2. Total Life Time Value of one customer when you factor in all the potential referrals they make to your business

 

Direct Life Time Value of a customer 

The direct Life Time Value of one customer takes into account the average spending by the customer per visit, the number of visits to the business per year, and the potential number of years the customer is likely to remain with your business. These factors are placed in the following formula.

Average transaction  X Number of visits per year  X Number of years

=

Direct lifetime value

 

 

 

 

Total Life Time Value of a customer

If a business engages the customer emotionally, to a point where the customer refers others about the business, you now have the total Life Time Value of a customer. This is depicted in the following formula:

Direct life time value of a customer X Number of potential referrals

=

Lifetime value

 

 

 

Once you begin to look at a customer beyond the value of one transaction and seriously begin to create long-term loyalty by emotionally engaging the customer to your business, you will find exponential benefits to your business. The first step in this process is to recognize that the value of a customer is far greater than the value of one transaction. This shift in thinking is bound to bring a shift in culture that is customer-centric.

As Albert Schweitzer aptly said:

“Aim for service and success will follow.”