Returning Quality Customers Math

Quality Customers fuel your company with an ongoing flow of good-margin work. Local companies tend to either have customers/patients who Return for Service one or more times per year (auto repair shops, dentists) or Big Ticket/One-Time customers/patients who won’t need the service again or won’t for many years (auto transmission shops, many types of contractors). In this post, let’s do the math on the impact of Quality Customers on Return for Service-type companies. It’s amazing.

7x to 24x More Profitable 
Not only is it delightful to work with Quality Customers, but they’re also seven to 24 times more valuable to your company than 2^nd-Rate and Bad Customers. That’s huge!

Companies With Returning Customers
If you’re running a company that has returning customers, you earn a whopping 24x more profit from a Quality Customer than from a 2nd-Rate or Bad Customer! An exaggeration? Sorry, it’s true. Take a look at the “Key Numbers – Returning” image. (Your numbers will vary, so download the Returning Customers Comparison Spreadsheet from the Tools section and use it to calculate the difference in customer quality for your company.)

Let’s go through it for an auto repair shop, although the same dynamics work for all “returning customer” companies. Suppose your average invoice is $350 with a 50% direct margin, which gives you $175 direct margin for both Quality Customers (QCs) and Bad Customers (BCs). No difference. But QCs have more cars (1.5 on average vs. 1 for BCs) and service them 1.5 times on average per year vs BCs’ 1 time. Now all of a sudden you have a $394 margin from QCs in Year 1 vs. only $175 from BCs. Note: If you’re a dentist, instead of “more cars,” you’ll get more patients on average per QC household because they’re going to be more loyal to a single practice. If you’re a carpet cleaner, your QCs’ houses will be bigger and they’ll call you for service more often.
 

How about loyalty? Let’s say QCs stay with you for an average of 7 years while BCs leave after 2 years for some coupon deal at a competitor. This causes the lifetime value of QCs to be worth $3,150 vs. $389 for BCs. Now add referrals. QCs like you and your team, so they refer their friends—not all the time, but say they average 2 referrals in the 7 years that they’re your customer. Since QCs tend to refer like-minded friends, most of their referrals are likely to be Quality Customers.

Total Score: Lifetime Value (direct margin) of each Quality Customer = $9,450 vs. $389 for 2nd-Rate/Bad Customer

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