Hey is that your customer?
This seems like a simple question. But what exactly is a customer? Most business people would define a customer as someone who purchased your products or services.
OK, fair enough!
But if someone makes a purchase just once, are they still a customer in a year? How about 5 or 10 years?
You may be wondering why I am making such a big deal over this small point. That’s because it IS a big deal. Customers are the lifeblood of your business. How (or if) you define the word customer can make the difference between your business just surviving and thriving.
Did you have to take geometry in school? I did and I have to admit that it wasn’t my best subject.
The first few days of geometry were spent studying definitions. The teacher spent a lot of time defining things such as “a point”, “a line”, and “a plane”. As it turned out, this was important because it was the foundation of everything that came later.
The word “customer” is like that. Customers are the foundation of your business. Even writing that last sentence seemed silly because it is so obvious. But most of us only have a very fuzzy idea of what, exactly, a customer is.
The Big Problem
Without a strong definition of a customer it is impossible to answer some of the most important questions regarding your business.
Such as:
- What is the lifetime value of a customer? (Incredibly important to know.)
- How long can I expect a new customer to remain a customer? (You need to “reactivate” them if they are slipping away.)
- How many times will the average customer purchase our product (or service)?
- How many customers do I have?
- How many new customers have we attracted this year?
- How many customers did that last ad campaign generate? (Without knowing this it will be impossible to decide whether you should continue or not.)
- How much can I spend to acquire a customer?
- What is the most effective way to reactivate customers?
As you can see, these are VERY important questions to answer. But how can you answer them unless you have an exact definition of a customer?
You can’t!
One Possible Definition
Were not after a legal definition here. As business owners we can define “customer” in any way that is useful to us. What that means, precisely, depends upon what type of business you have.
Here’s one off the top of my head:
“A customer is someone how has purchased from us more than once in the last 90 days.”
Of course, “90 days” may or may not be a reasonable number. If you’re a dentist, then you may only see your patients every 6 months.
If you do something with a very long lead time, you might consider someone who has made a purchase a customer if you have personally talked to them in the last 6 months.
But notice that the above definition allows you to answer the questions from above. You can now draw a line between customers and everybody else.
This means you CAN determine the lifetime value of a customer. You DO, on average, how long they will be a customer. You DO know how much you can spend to get a new customer and still make a profit.
Hopefully you can now see just how important this is to your business.
If you already have a solid measurable definition of a customer. Great! You’re ahead of the pack. If you don’t, then now is the perfect time to sit down and create one.
