Thursday, March 28, 2013

Your regular users can cost you money

I watch a few coffee shop regulars a few times a week. They enjoy their coffee, it starts the day. 

Every day.

I spoke about this the other day in a lecture and in a recent blog. It's a metaphor for the bigger picture. They buy, probably 300 coffees per year. Its about $1200 a year per guy. Cool. They're valuable.  It's the whole basis of thinking about customer lifetime value. And in this case I don't think they're costing money to the business. But they they do take all four newspapers that are supplied for customers and have a few glasses of water.

Bt I remember a time where I was selling a typed of plastic wrap  to a big customer. He bought about $400k per year. It was a technology my company was getting out of - our equipment was old and inefficient. The market price for the product was well below what we could profitably make it.

As the sales guy I was caught in the middle. The customer (let's call him Vili) kept telling me he could get the product cheaper but was staying out of loyalty. The company kept telling me that I needed to get a better price. When it all fell apart, Vili had thought I was insulting him - asking $35.00 when he had quotes on his desk for $20. Live and learn. Today I might just tell him straight but back then I felt I had to look like I was trying.

I suppose the key message it that it's important to know how much you're making from each customer, and to think about it broadly.

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