Most sellers measure the Total lifetime value of their clients. This is a mistake. What they should be measuring Return on Client Relationship. ROCR is the true worth of clients beyond simply what they buy. When you calculate this number and track whether it is growing or shrinking over time you will know if you have achieved leverage or not. Here are the factors that you should consider when calculating your ROCR:
- Total sales. While it’s easy to calculate, it only shows a small portion of the client’s true value. What is the total value of the client’s original order plus all the incremental sales they have made over the years?
- Referrals. What is the value of all the business they have referred you to? A customer who provides direct referrals for your company multiplies the effect of their purchases. For example, if a customer refers two other customers—whom you didn’t have to pay for to acquire—then they can be worth three times their original sale, boosting their ROCR. Don’t be surprised if you find that the value of the referrals is higher than the total value of the client’s own purchases. Client retention is the key to repeat referrals. When a seller on closes a piece of business, he or she makes two sales—one is the immediate check and the other is referral business. Too many sellers don’t pay attention to retention and never completely reap the rewards of the second sale.
The value of the exponent is equal to the value to the client’s brand. While references are the most powerful selling tool that any company has, they are even better if your client has a powerful, well respected brand. When Marriott became a client of mine at PS Software, their ROCR to me measurement soared because they brought a powerful brand to our client list in a targeted market (major hotel brands) that we wanted to pursue.
We actively promoted our work with them and quickly received interest form other hotel chains because of Marriott’s strong brand. At the same time, I was also managing Enron. Their ROCR dropped like a stone when their company was rocked by scandal and investigated by the U.S. Department of Justice that same year.
The power of your client’s brand has a direct effect of the value of the buzz the client can create for you in the marketplace. “Buzz.” Or advocacy can be defined as the power for a well-known client to act as reference sites, provide testimonials or references make it easier for you to sell. They reduce your labor intensity and shorten your sales cycles ensuring profitability.
Don’t sell your clients short! Only when you understand the client’s true worth as measured in ROCR do you maximise the value you are delivering to your best clients while returning the highest profit to your own business.