What is organic growth? It is best defined as the process of business expansion achieved through increased output, sales, or a combination of both. It represents pure growth from within.
Beyond Insurance suggests there are four primary strategies to drive organic growth:
- Market penetration – selling more to existing clients
- Market development – selling to new clients
- Product development – offering new products and services within your market
- Diversification – offering new products and services to prospects and new clients by developing specialization or a niche
Lifetime Value of Your Customer (LVC)
In marketing terms, the lifetime value of a customer represents the net present value of the cash flows attributed to the relationship.
It is short-sighted to view the value of a relationship in terms of the revenue derived from an initial engagement. Rather, the following must be considered:
- Repeat purchases over the lifetime of the relationship
- Cross purchasing of additional products and services
- Price premium due to the appreciation for the experience
- Positive word of mouth in terms of referrals
- Appreciation and enjoyment when interacting with staff
Many growth-oriented firms use acquisitions, aggressive pricing strategies, marketing campaigns, and sales blitzes to improve performance. While these strategies give the organization a short-term boost, they are not long-term solutions. Customer engagement and loyalty is the most solid plan. Real growth occurs because there is a “love affair” between an agency and its customers – when the customer can’t wait to sing the agency’s praises to friends and colleagues.
Let’s use an example. ABC Company becomes a new client with revenues of $10,000 for its initial engagement with your agency. In the years ahead, your firm has met or exceeded each and every client expectation. Taking that into consideration, ABC Company becomes a “raving fan.” And the relationship grows exponentially as shown on the below Lifetime Value Profitability Chart:
As the above chart indicates, the following occurs:
- ABC continues its engagement on its initial product line yet becomes less price sensitive.
- Because all expectations have been met or exceeded, ABC is pleased to expand its relationship through cross sell initiatives.
- ABC becomes an advocate and a key referral source.
- The relationship is of such value that ABC is willing to pay a premium for the experience.
In the case of ABC, the net present value of its relationship is $350,000 over the seven-year term. For a $10,000 initial deposit, what a return!
How do you determine the lifetime value of your customers?