I am working the spreadsheets this week and I am trying to quantify “the lifetime value” of a FreshBooks customer. In digging into that, I came across this excerpt from “Managing Customers As Investments“:
On average, a 1% improvement in acquisition cost improves customer value by only 0.1%. Improving margins by 1%, for example, by cross-selling, improves customer value by about 1%. This result is similar across firms and is consistent with the margin elasticity discussed in [an appendix]. Improving customer retention by 1% improves customer value by almost 5%. In addition, retention shows a virtuous cycle – the higher the current retention rate (e.g., Ameritrade’s 95% versus Amazon 70%), the higher the impact of improving retention.
Customer service in the services world – and I include web services in that world – is SO important. To some extent that belief has always been a gut thing; it’s great to find the research to backup your instincts. Here’s a good review of the book.