Intro to Reporting Lifetime Customer Value

0:00 Thank you for attending today. Today's topic is, who are your best customers?

0:07 It's all about customer lifetime value for retailers.

0:11 So today's presenter as usual is Charlene. Thanks Kyle. So good afternoon.

0:19 Welcome to October's virtual webinar.

0:23 For information or as a reminder, if you attended last month's, September through November is really focused on your customer.

0:31 So last month we walked through customer retention using gift cards and promotions.

0:36 October our focus will be the topic of customer lifetime value as Kyle suggested.

0:42 I'm Charlene from Professional Services and today we're going to answer a funny question.

0:48 It sounds simple but it can be challenging to answer with any degree of certainty. Who are your best customers? Often retailers, if you ask them, might point to whoever spends the most money.

1:03 At the end of the day, it's about money. But I'm hoping by the end of this short webinar, I can show you that that can often be the wrong answer.

1:12 And to show you that the information you need to find the right answer is in System Five.

1:17 Just to set expectations, this is an overview session.

1:21 Two weeks from today, we will run a hands-on workshop where I'm going to work through all this content that I'm going to share today in a System Five demonstration.

1:31 Okay.

1:36 All right.

1:37 So here's what we're going to do in the next 20 to 30 minutes.

1:41 Six short parts.

1:43 We're going to start with a mindset shift.

1:47 Why the numbers that we are typically measuring are not really going to tell you who the best customer is.

1:56 Then we're going to define what customer lifetime value is and a simple formula behind it.

2:03 Then we're going to move into the concept of profit as opposed to just revenue.

2:08 Next we're going to identify the four reports in System Five that can give you these answers, and then some concrete ways to act on what you find, and what you can do to get started right now.

2:22 So there can be some takeaways if you're interested in what we're going to talk about this afternoon.

2:28 These same six sections are going to guide us through the workshop later this month, and that's what we're going to be covering.

2:35 So it's going to be very easy to transition from the webinar and what to expect in the workshop.

2:45 Okay, so let's start with common things that many would track today.

2:51 Now, I've never worked in retail, but to me, in a business, you're gonna be looking at sales per day, the average dollar spend of those sales.

3:00 What's the average that you're making across the sales in the day?

3:03 What's your margin per item?

3:05 That's pretty important.

3:06 And then best-selling products.

3:09 These are great things to be tracking.

3:11 They're meaningful measurements of your business.

3:14 I would think, they allow you to identify trends.

3:18 You can pivot and make changes if you see that, let's say, your margin is slipping over time or your sales per day over the past two weeks is decreasing.

3:30 The one thing that is of note here, those things are all great things to track and I wouldn't suggest you stop tracking them if you are.

3:38 They're important to understanding your business.

3:40 But one thing to point out is that these all describe a transaction. None of them describe a relationship.

3:50 So the relationship is really talking about the customer.

3:53 So if we shift over to the right, who are your best customers?

3:59 How often do they come back?

4:02 Are they providing references for your business, talking about you?

4:07 What is the frequency of their purchasing?

4:11 What do they come back for six months later? Are they frequently purchasing?

4:18 And lastly, what is a customer worth to you over time, not just today's transaction?

4:24 All of this pulls together into the concept of customer lifetime value.

4:30 Now understanding this data is a strategy for customer retention and for business growth.

4:37 So just a rhetorical question.

4:40 Can you name, think about it, can you name your top customers or the top 10% of repeat customers, and do you know what they buy?

4:48 And is that a feeling?

4:50 Because you may have relationships today, or is that backed by data?

4:55 So that's really what we're talking about in today's webinar.

5:03 Okay, so let's look at customer lifetime value.

5:06 I bet you if you looked this up online there's probably a variety of methods that can be used to calculate this.

5:15 But today what I'm talking about and what we're going to look at in the workshop is this.

5:23 It's really around the gross profit that a customer brings to you over the whole relationship, not the total sales value. So we want to shift away from that.

5:33 So we're going to look at this formula, and the formula is the average order value of a customer.

5:40 And this obviously would be over time.

5:42 So in this example, we're looking at a customer that we've had for six years.

5:45 What's the average of the invoicing that they do?

5:49 And that would be the sales value.

5:52 Multiply that times how many times they purchase annually.

5:56 In this example, it's 2.5 times they purchase.

5:59 So clearly you're taking an average because you're not gonna have half of a purchase.

6:03 But two and a half times.

6:06 And then the gross margin percent: what do you actually keep from the sale to the customer?

6:12 And here it's suggesting 38%.

6:16 Lastly, the number of years that the customer has been with the company, or with your business.

6:24 And in this example, six years they have been purchasing.

6:27 So if you multiply those together, the customer is worth about $2,565 in gross profit.

6:35 Now, things could totally change in year seven if they stop purchasing, because you're looking at the customer lifetime value.

6:42 But at any point in time, and I would suggest annually, you're going to look at this, and that's what it would show, the $2,565.

6:52 So where do these numbers come from?

6:55 Well, the first two come straight out of your sales history, and that's all pulled in from System Five.

7:01 Now your margin percent, that's your number. It's how you price things, and that can be arranged based on the customer.

7:09 Honestly, 38% might not even be close to what you're achieving.

7:13 You could be getting more, you could be getting less.

7:15 You could have a standard margin that you have across all your inventory, but if you're already using things like price schedules to provide discounts to customers that buy repeatedly from you, you're going to have a different margin.

7:31 Now, the years as a customer can be determined based on the first purchase recorded in System Five.

7:38 Now, if you had that customer prior to coming on to System Five, well, it's a little bit swayed, but you're still reporting the same thing.

7:49 It's first purchase in System Five, and that's also reportable.

7:54 Now, just coming back to the margin for a second, I forgot to mention that you can estimate your margins, or you can also choose to add up the actual margins of a customer using data from System Five.

8:10 Now, you might be thinking, well, that's a whole lot of work to do.

8:15 But as we work through this webinar, you're going to see that you can start with your top 20 customers that actually do spend the most, do that as an experiment, and go from there and see what the results are that come back to you.

8:31 Just as a point of note, none of these values are based on anything.

8:35 This is just for illustration.

8:37 They're not benchmarked by an industry or anything like that.

8:39 So these are just numbers.

8:43 Okay, so that's really the simple formula that we're talking about.

8:47 And as we go through this, we're going to move into how do we get that out of System Five and make some sense of it.

8:59 Okay, so we're gonna make a point about the margin with these two examples.

9:04 So you can look at customer A, and they spend $10,000 with you.

9:08 Customer B only spends $3,000 with you.

9:11 So that's the point of, oh, okay, well, my top customer, he's spending $10,000 with me each year.

9:17 Which one do you want more of?

9:19 Well, instinctively, you're gonna go with $10,000. It's a lot more than $3,000.

9:24 But let's say customer A negotiates hard and buys at deep discounts, and they return a lot of product.

9:33 And if you have a service team, they're constantly calling them.

9:38 So once you account for the discounts, the returns, and service time, in this example, customer A leaves you with $600 in profit.

9:48 On the flip side, customer B, spending only $3,000, usually pays close to list, gets no discounts, doesn't return things, and doesn't touch your service team.

10:00 So customer B is actually more profitable for you than customer A.

10:05 So that's a pretty extreme example, but the whole idea is that if you ranked your customers just by sales alone, you'd be looking for more people like customer A, and if they were that profile, then you'd be losing money.

10:19 So really, it's just to emphasize the point.

10:23 This is why customer lifetime value is built on margin, not revenue.

10:28 Now, a new piece to the formula that wasn't shown on the previous slide is the idea of the service desk.

10:35 And not everybody has a service desk, but what it's really focusing on is, you know, perhaps customer service, or the effort that you're spending working with the customer that is a cost to you because it's taking an employee to do that.

10:49 Now, if you have, let's say, a service desk, if this is something that you offer and it is tracked in System Five, let's say by technicians that are helping out at a set rate, then you can actually get that value out.

11:07 What is it actually truly costing you?

11:10 So some of it might be a little bit tricky and you might have to exclude that, or you could look at hours spent and provide a rate in the calculation, but really it's all about how much is that customer actually costing you.

11:30 Okay, so finding them in System Five, these are the reports that we're going to be looking at.

11:37 So the Customer Report Designer, if any of you have used that, it's pretty flexible.

11:43 Lots of columns, a bunch of filters.

11:46 You can build a list of your top spenders, a list of customers who buy and have gone quiet.

11:52 There's all kinds of things that you can do, especially with the filters.

11:57 You can look at filtering purchases by year so you can see year over year and then average it.

12:03 So lots of flexibility with the Customer Report Designer.

12:09 Ranking Sales is really a popular report that I often see customers overlook.

12:15 It's fast, it calculates data based on a date range, and then you can rank your customers by sales for any period.

12:23 Easily see your top 20 customers in a few clicks based on quantity purchased, based on the dollars purchased.

12:33 So that's another report that we're going to be reviewing.

12:38 Customer Yearly Sales also contributes well to this because it shows a customer's year at a glance, and then seasonal patterns.

12:47 This is really interesting because if you know a customer's buying cycle, I'll call it, where they tend to purchase within a particular season, let's say it's leading up to, I don't know, the fall season or something like that, you can see that with Customer Yearly Sales.

13:11 And that's where it can lead to picking up the phone, connecting with your customer in some type of way, whether it's sending out an email or just connecting with them in general.

13:21 And I'll talk about that in a few slides.

13:23 And then lastly, Category Sales.

13:26 Category Sales by Customer shows what customers are buying, and you can compare this to your most profitable items.

13:34 And that can really tell a story as far as, okay, well, there's lots of purchasing going on, but how do we get them into purchasing something different?

13:45 Maybe there's more marketing that needs to be done.

13:47 Or again, using the data from System Five to make decisions and try different things with your customers.

13:58 And the last little bit on here is lookup words.

14:00 Lookup words are really powerful when we're talking about reporting.

14:04 We're going to talk in just a minute about the importance of perhaps categorizing your customers into different tiers.

14:15 So I think that's the whole intent around doing customer lifetime value, is to identify those that provide a lot of value to you.

14:23 And how do you want to rank them?

14:24 Like this example: you could do tier A, B, and C, contractor, designer, VIP.

14:30 These things really help with filtering.

14:34 So I want to look at my top tier customers and see what I want to do with them.

14:40 And that's something easily done when you're marking them with lookup words.

14:44 It can also let you build a mailing list.

14:47 You can follow up based on a group, those types of things.

14:51 So really a nice way of tagging customer types.

14:56 And again, these are the things that we're going to talk about in the workshop.

15:03 Okay, so I know it says prerequisite, but you really need to have customers to get customer lifetime value.

15:10 And I know that obviously is evident, but every report mentioned on the previous slide is going to track based on your customer.

15:17 And this only works if you tie a customer to an invoice.

15:23 Now when a sale is attached to a customer, of course, history is going to build up.

15:26 And then we're going to have that data to be able to call on.

15:31 Walk-in cash sales with no customer attached?

15:34 Well, certainly the sale's happening and the money is there, but the revenue isn't tied to anything, and that's okay. There's just no ability to track it; the customer is not going to show up in the reporting. And of course, I know that's obvious. Now, that's not to say that cash sales can't be done, because, you know, when I think about it, if I go to another town and they ask for my contact information, I'm just going to say I'm not local. So there's no point.

16:07 And so it's okay to have cash sales, they just get filtered out of your customer lifetime value analysis.

16:15 It's really just, you know, it's not to say you can't do cash sales, it's just where you're going to see the value is when you are tracking customers.

16:25 So, you know, the tips at the bottom, the one, two, three: ask for a name, email, or phone at checkout.

16:32 We're going to talk about loyalty, which we did talk about last month, but loyalty is a great way to be able to collect customer information.

16:44 The points program, even framing it around warranty, you want to be able to collect the information.

16:50 It's easy to add customers on the fly at the time of sale.

16:57 I know that there are concerns with some around the bloat of customers in your CRM, in the customer list in System Five.

17:08 But it is an opportunity for you to be able to retain your customers.

17:13 One thing, and the last one: keep one record per customer or household.

17:18 That applies, it's sort of alluding to like a house, a marriage, but it can also happen with a business and multiple contacts making purchases.

17:29 I think that's pretty common, but this can be solved with a main corporate customer account and contact names.

17:37 So those can be the customers that are making purchases and you still have that one main corporate record.

17:48 Okay, so here are things that you can choose to do.

17:53 This is a strategy for consideration.

17:55 Rank your customers A, B, and C and flag them with a lookup word.

17:59 Now, we're talking about calculating customer lifetime value, and if you haven't ranked your customers yet, my recommendation would be ranking them based on their spend today.

18:09 So your top spenders, which can easily be reported, mark them with a lookup word.

18:15 And you can adjust that later after you go through the analysis.

18:21 The second: once you know what a customer is worth, like the example of the $2,565 that we went through a couple of slides back, you can decide rationally what you can afford, like a budget for winning customers.

18:42 You can choose to allocate a certain amount of that $2,565 to keep your customers. Hold on to them.

18:52 Just hold that thought for the next slide.

18:59 Yearly sales tells you when the typical purchase happens, and then when it's worth engaging in a phone call.

19:06 That's more like, oh, they typically buy in July, so leading up to July, let's give them an engagement email or a phone call.

19:16 And then consider points and gift cards.

19:19 That kind of refers back to number two, where you want to be able to budget for those winning customers.

19:24 And that's where it can be the gift cards, rewarding referrals, that type of thing.

19:37 And then lastly, rewarding customers with price schedules or contract pricing, also another tactic or strategy to be able to reward those customers that really have a solid lifetime value with you, because you want to retain them.

19:58 Okay, so here's an example, and this is around the budgeting, and this is just an example.

20:05 If you go through this exercise, the information is really what's important, but this is an example of what you could do with it.

20:11 So on that same $2,565 worth of profit, let's say you decide, I'm gonna allocate or reinvest 10% of a customer's lifetime profit to keeping them.

20:25 This is just an example.

20:26 It's easy math, the 10%.

20:28 If you wanted to do something like this, you decide what it is.

20:31 But that would be $256.

20:34 You can make a strategy around that.

20:36 So in this example on the slide, it's like a $50 reward that you give for a referral.

20:44 We're gonna talk about referral tracking in the workshop and how you actually do that, but let's say they give you a referral.

20:51 The $50 reward is 2% of the $2,565.

20:55 It's really nothing.

20:56 And there's that feel-good.

20:58 They're talking about you and you're giving them a $50 reward.

21:03 The follow-ups, doing an annual follow-up in some way to engage with them, happy birthday if you know that information, those types of things. This is just giving it a cost of like $5 to do a mailing once a year.

21:19 And then if you were to engage in some type of a points program, let's say it's 2% of purchases, that's priced at around $135.

21:30 Now these really don't add up to a lot when you understand what that customer lifetime value is.

21:39 It almost looks like a cost, but they can also be looked at as an investment in customer retention.

21:45 When you've got that good relationship with the customer, these things really become small because that customer is going to continue to keep purchasing with you.

21:58 Okay, so that is really what I'm trying to get across with the CLV analysis.

22:06 It lets you make decisions about your business when it comes to your customers.

22:12 Again, these are just examples. What you do with the information can be enlightening, but what you do with the information is up to you.

22:19 But it is an interesting exercise to go through, and it doesn't need to take a lot of time, especially when we're talking about, you know, your top 20% or 10% of your customer base and just going through the exercise of seeing what their lifetime value is to you.

22:38 All right, so with that, the next workshop, as noted, is going to be in two weeks' time. I will host the hands-on workshop using a live System Five demo where we walk through the reports properly and follow those six steps that we outlined early in the webinar, and you can register at windwardsoftware.com/workshop.

23:00 You can also speak to your account manager if you would like to have some assistance with that.

23:06 And I will just give you the standard slide. We do have free resources.

23:11 There's a lot that's going to be in here on customer lifetime value, because it's really a concept; there isn't something in System Five called customer lifetime value.

23:20 We're pulling this together because it's a way of being able to use data in your system.

23:24 But the reports that I showcased here, you would be able to find some information on them in these free resources.

23:35 So with that, Kyle, do you want to take a couple minutes and show off the new branding?

23:40 Do you want to do that today?

23:43 Yeah, sure.

23:45 Let me just take the screen share from you real quick.

23:51 Go ahead.

23:52 You probably have noticed or seen some new logos and what have you.

23:58 And we just want to make sure that, wow, I don't know which screen this is.

24:04 I hope this is the right one.

24:06 OK, that is the right one.

24:08 So, we just wanted to make sure that everybody understood that this is, in fact, the same Windward Software that you know. We've updated some of our logos, and you will start seeing this stuff pop up here and there.

24:26 In the meantime, there's going to be some of the old logos just kind of hanging around still as we work through changing things around, but we wanted to assure our customers that Windward Software has changed our logo.

24:41 Nobody's impersonating us or anything like that. We really did need a little bit of a facelift.

24:51 The old logo wasn't really scalable on some of the new projects that we're working on.

24:57 So we're really, really interested in just showing that, you know, Windward is changing.

25:06 And we're really excited to show off some of the things that we've been working on, and there are gonna be some very, very interesting and very cool new developments coming your way very, very soon.

25:22 We're gonna be showing off and showcasing some new things that we've been working on, probably within the next few weeks here.

25:30 Internally, we're gonna get shown some of this stuff on Monday, and we'll probably be setting up another webinar that isn't exactly a professional services webinar.

25:44 It'll be more like a showcase webinar, coming up probably sometime in the next month or so.

25:50 So we're happy to show off.

25:55 That's all I got.

25:56 Thanks, Charlene.

25:58 All right, everyone.

25:59 I appreciate your time this afternoon for stepping in and spending half an hour with us talking about customer lifetime value, and I hope to see you in a future webinar or workshop.

26:09 Enjoy the rest of your day.

26:11 Thank you.

26:11 Thanks everybody.