Lifetime Value vs. Transactional Value

On The Property Management Show today, we’re speaking with Andrew Smallwood, who is the Chief Customer Officer (CCO) at Second Nature and the host of the Triple Win podcast. We’re diving into the difference between lifetime value and transactional value and how understanding that difference will help you have a successful property management business. Building Customer Lifetime Value versus Transactional Value The conventional thinking around winning is that you have to get the biggest part of the pie. You have to focus on maximizing profits. Andrew is asking us to think about winning in new ways. Here’s the technical definition of customer lifetime value: Customer lifetime value is how much revenue you get from a customer over the lifetime of that relationship. From a revenue perspective, that’s an appropriate way to define lifetime value. It’s a fine metric. What gets overlooked is that revenue cannot be the only way you look at things. When Andrew thinks about lifetime customer value, he’s not only thinking about how he’s monetizing the relationship. Here’s what he’s thinking about: * What difference do we make for the customer? * What value are we bringing the customer? * How do we expand the difference we’re making and the value we’re delivering? Increasing the value proposition and creating new value for customers will impact your lifetime customer value. If you make a bigger difference, you reap the rewards. If you start and end with how to monetize your relationship, this might lead to sub-optimal thinking and behavior; and, ultimately counterproductive results. Lifetime Value: Keeping Customers and Residents and Talent Property management thrives on recurring revenue. Churn is an acknowledged problem in our industry. We’re excited to see the new benchmark study but from the early results, we know it’s typical for a management company to lose 20 percent or 25 percent of its units. In the hot sales market we had through the pandemic, losing 30 percent or more would not be unheard of. When customers are leaving at that rate, it becomes difficult to grow a business. A lot of property managers experience getting stuck. Once you reach 150, 300, 500, or 700 doors, growth comes more slowly. Until you solve for the churn problem and you manage to be more effective with acquisitions, looking at lifetime value is your best way to sustainably grow a business. Andrew says the question that needs to be asked is: How do we grow a relationship and bring so much value that people have such a great experience they would never leave? At Second Nature, his team asks how to create a resident experience so good that residents don’t want to leave. They want to create an investor experience so good that investors don’t want to sell properties, they want to buy more. They want to create a team experience so good that the talent within the company wants to stay in the industry. That drives the Triple Win philosophy. Creating Retention Experiences While Making Money We want to create experiences so good that people don’t want to leave. But, we’re all in the business of making money. Andrew says this takes some nuance and thinking. Who gets to define what a good experience is? Ultimately, it’s the customer. Are these experiences that people pay for? Are they experiences that people stay for? Are they experiences they’ll want to tell their friends about?