As the market for office products and business equipment starts to contract slowly, independent resellers have never had a more opportune time to understand the importance of customer lifetime value (LTV) and the cost of new customer acquisition (CAC).
Ultimately, there's only one way to survive in a shrinking market, to increase market share. Fortunately, despite the mature market in the office products and business equipment vertical, it's still a massive market with over $200 billion in annual retail sales in the United States. In other words, independent resellers still have plenty of opportunities to increase market share.
Increasing market share requires successful resellers to take business away from someone else, a company an incumbent is trying to hold on to. So, to succeed, office product resellers must be at the top of their game with their value proposition and customer service.
There's no room for poor retention rates or weak customer acquisition strategies - both are incompatible with increasing market share.
Lifetime value is the estimated revenue and margin a customer will generate during its relationship with its supplier. It considers not just the initial purchase but also how much is likely to be spent in the future on the reseller's products and services.
In understanding how much sales revenue and margin is likely to be generated by a customer over its lifetime, it becomes possible to determine the optimum way to spend a marketing budget. This budget should be focused on developing customers likely to have the highest lifetime values.
Check out our infographic below that explains lifetime values and the cost of customer acquisition. Then head over to our interactive calculator to experiment with your numbers and learn your current LTV and CAC.
How to boost LTV
Segmenting your customers according to their persona and how long they've been a customer helps determine where sales efforts and the marketing budget should focus on acquiring more "ideal" customers. While "ideal" customers may cost more to develop, they should be more beneficial with higher lifetime values and retention (lower churn) rates in the longer term.
Delighting your customers with your products and services, your overall value proposition, and your customer service will keep customer retention rates high while simultaneously helping serve up opportunities for developing up-sell and cross-sell opportunities with your best customers. These elements create a virtuous cycle of improved LTV and a pathway for increasing market share.