I promise we are not suggesting that you start seeing all of your customers and clients as dollar signs! However, there are a few key metrics you MUST know to be able to run a healthy business, and to make informed decisions on how much you can spend on advertising to profitably acquire new customers.
One of the easiest metrics to track, that will help you with both of these decisions, is Customer Lifetime Value or CLV. Don’t worry, we’ll give you a few examples of exactly how to calculate this in your pet business!
Customer Lifetime Value is the total income you expect to generate from one client over the entire time they remain with you as a paying customer.
Measuring CLV requires a bit of nuance, as no two customers are exactly alike. You will need to look at averages across certain types of customers, and depending on your business, you may wish to calculate different CLV for different types of customers.
The end of goal of measuring CLV however, is to have a number attached to every current and prospective client so you know how much revenue you can expect to generate from one client, and then use that number to make better business decisions. You can compare your CLV to your customer acquisition cost as a quick way to estimate per customer profitability, and to ensure that your business is healthy long-term.
First, you will need to calculate the average value of each sale. If you have a bookkeeping software like QuickBooks, then this should be easy to do. However, if you have never looked at this on an annual basis, there may be a lot of data. You could start with a one or three month period, and then just extrapolate that number over the entire year. Just remember, the more accurate you are here the better your projections will be. If you have a spike of sales around Christmas, then calculate your average order value across 3 summer months, may not give you an accurate representation of your business.
Second, whichever time period you use in Step 1 to calculate the average order value, you will need to use that same time period, and calculate the average number of transactions per client. How many times did each client make a purchase from you in the last 12 months, for example. If you are a dog groomer, maybe this number is 6 times per year. If you are a dog walker, maybe this number is 300 times per year. Only you know your own business, but the frequency that your customers spend money with you is a critical component of your CLV.
Simply put, how long does a customer remain a customer with you? Again, depending on the type of pet business you run, this data may be hard to gather, but it is critically important to know how long you can retain a customer (Because later we will talk about ways to IMPROVE your CLV, and this is one of the easiest). This calculation may be as easy as looking in your records to see when the first transaction appeared from a customer, and then when you stopped seeing transactions. Please understand that this number may not be exact, but the closer you can get to accurate the more useful your calculations will be.
Now comes the fun math part :
CLV = Average Order Value x Number of Transactions x Retention Period.
Below are a few examples of how these calculations may look in a few common pet businesses:
The average order value for a dog groomer in South Carolina was $65 per transaction of the last 12 month period in 2021. Customer on average, across all customers, visited 4 times per year. Thankfully, pup parents tend to be extremely loyal in exchange for great care for their pets, so the average retention period appears to be 7 years. So, here is how we would calculate CLV for this dog groomer:
CLV = $65 (average sale) x 4 (annual visits) x 7 (years) = $1,820
The average order value for a german short hair pointer premium dog breeder facility is $1,800. As you review your records, you notice that you do occasionally have a repeat buyer, but over the last 10 years, your average number of annual purchases averages out to only 1 purchase every 10 years. Again, retention period is hard to calculate but the best you can calculate is that your retention period is 10 years. S0 your calculation would like look like:
CLV = $1,800 (average sale) x 0.1 (annual visits) x 10 (years) = $1,800
Pet Walking is much more like a coffee shop, than a care dealership. You typically perform this service most days of the week, and for a smaller transaction amount each time. For a typical pet walker, your average order value is $10. Average number of annual transactions are 280. Your customers on average remain with you for 2.5 years. Your CLV calculation will look like this:
CLV = $10 (average sale) x 280 (annual visits) x 2.5 (years) = $7,000
Now that you have an understanding of how much each customer is worth to your business (Again, this sounds very cold, but we do need to run a profitable business, so there has to be a balance between emotions and cold hard numbers - as much as we may not like them), we can walk through some ways to improve this number over time.
You love your customers. You hope that your customers love you back. One way to share this love is by using a loyalty program to give your regular customers discounts, bonuses, or “insider” specials and gifts that only your loyal clients have access to. If your customers feel valued, they are much more likely to continue coming back to you. Many pet businesses involve an incredible amount of trust, and a loyalty program is a great way to build and foster trust between you and your clients.
This should go without saying, but it's often worth repeating, impressing your customers and exceeding their expectations is foundational to keep your clients coming back. Creating an amazing customer experience does not have to cost much. In fact, often, it does not cost anything. It can be a cheerful receptionist at your front counter, it could be a seamless return on a faulty product, it could be a flexible cancellation policy, it could be as simple as a $0.10 cute fabric bandana tied around the neck of every dog you groom. Customers notice the little touches, and the more opportunities you can find to “WOW” your customers, the more likely they are to return AND to recommend their friends!
Technology may be a challenging subject for some people. However, the more effort you put into applying the right technology and software to your business, the more dividends you will see as a return in customer retention. For many pet businesses, this looks like using the right scheduling software, so clients don’t have to call your office and wait on hold while you flip through your paper scheduling book. This could also mean an automated SMS text reminder system that send a quick text reminder to your client before their next appointment. It could also be an online payment portal for credit card payments, so you don’t have to rely on cash or check. It’s the digital age, and your customers expect a minimum layer of technology in your business.
Social Media, in one form or another, is here to stay. Some of you may love it and some of you may hate it, but however you feel about it, you NEED to leverage a proper social media presence for your pet business. Our recommendation is always to start by finding the one channel that the majority of your customers spend their time on, and focus first on optimizing that platform. For many pet businesses, you may be able to exist only one on social media platform - usually either Instagram or Facebook. Leveraging the most popular social network(s) for your customers, allows you to stay in their recent memory. If you are a dog walker, you may not need to remind your customers of your value and existence, because they see you multiple days a week. However, if you are a pet kennel or a dog breeder, it could pay dividends to show up in your customer’s social feed as a reminder that you can still solve their problems and provide value when they need it. Again, your social strategy does not have to be complicated - posting 2-3 times per week on your platform of choice, is often all it takes to stay in front of your customer base!
Pricing is always a challenging topic. You want to make sure you are competitive on pricing, make a profit, and keep up with inflation and the rising costs of doing business. One of the easiest ways to increased your customer lifetime value is simply to implement a smart price increase strategy. This strategy will vary widely based on the type of business you operate. Pet Groomers may be able to implement an annual price increase, dog breeders may increase prices every 6 months, dog walkers may only increase prices every 2 years. You can also experiment with offering subscription services for your customers where you lock them into a certain price point in exchange for paying upfront for visits. However you implement this strategy, just know that customers EXPECT prices to increase over time, and even though some may grumble if you have done the good working of creating an incredible customer experience, the vast majority of your customers will absorb your price increases and continue to pay happily!
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