Customer Lifetime Value

November 2012 Issue

Customer Lifetime Value (CLV)

Marketing experts will advise you to concentrate as much time / money (or more) upon keeping current customers than acquiring new ones. The reason for this has everything to do with customer lifetime value. Maintaining your hard-won customer relationships is absolutely crucial to HVAC business success.

Hard-won is a very apt description. Getting a new customer on your books can cost a business owner 700 percent more for a new customer acquisition vs. existing customer retention, according to a noted expert from Bain & Company. Further, customer loss (attrition) can amount to 50 percent if customer relationships are not properly managed – if customers are not contacted. To calculate your customer acquisition cost: Divide the total cost of your annual marketing by the number of customers you gained. 



Upping your customer retention by a small amount (say 5 percent) can result in 5-95 percent in increased profit. Your existing customers can be a significant source of future income for your business over time. This includes their personal purchases, plus the purchases of their referrals.

You can quantify this customer lifetime retention value for your company specifically if you’ve been keeping careful records of all interactions with each customer. If you’re not doing this, get started or get some expert help to do this for you. Careful tracking of customer history and analysis of your records will help you predict when you should contact your customer next and what services they might need.

Your can extract a huge amount of priceless data from your customer records, which can help you make realistic future plans for your business. Just one example: Data can help you determine how much to charge for each service and when it’s time to raise pricing.

How to determine CLV:

• Determine the average product purchasing lifespan, or how many years a customer will buy your products / services.

• Calculate your average profit per sale across the products a customer is likely to purchase, and add them up.

• Estimate the number of times a customer will buy over the lifespan.

Here are some example numbers:

• If you assume a 30 year lifespan,

• The average customer would buy two furnaces (total average profit of $6,000), three air conditioners or heat pumps (total average profit of $8,000), three humidifiers (total average profit $1000 and only 35% of customers have them = $350), two air cleaners (total average profit $1000 and only 40% of customers have them = $400).

• Also factor in service agreements and cash-paid service calls (estimate $2,500)

• This customer is worth $17,250!

• This example does not take inflation into consideration. However, if you use today’s conservative inflation rate, multiply it by 2.0, and this makes the customer worth $34,500!

It’s also valuable to learn how many referrals you’ve received from the customer throughout your relationship with them. Referrals have the lowest cost of acquisition of any new customer. That’s because the new relationship is easier to establish due to trust value that you walk in with. Don’t go forward with blinders on and depend upon luck to lead your to business success. Make sure you’re tracking your customer information. Make sure you’re communicating with customers; ask them how you’re doing and what they want/need.

How to keep your customers:

So how can you retain these valuable customers? A comprehensive customer retention strategy is essential. Have plans for regular contact, scheduled in a variety of formats (e-mail, social media, direct mail) to keep the customer aware of and involved with your business. Your past data can help determine the best time to re-contact the customer. 



You need a strategy for common situations: What type of contact will you make when you haven’t heard from/sold to the customer in three months? What type of contact is most successful if you’ve “lost” the customer to a competitor? What happens (what do you do) when they move to a new home in your area? When they move out of your territory? Successful businesses have specific plans to retain the customer (and / or gain new ones) in each situation. With good planning, retaining customers becomes systematic, quicker and easier.

Are you considering adding home performance services to your HVAC business to offer a more complete whole-home solution? Earlier this year, we created a unique marketing program for home performance companies, and are already generating leads and seeing success with our first few home performance clients!

To start building your HVAC marketing strategy, or simply learn more, please feel free to contact Continuity Programs anytime.