Repeat Business and Lifetime Customer Value
If you buy something from me one time for $10, that represents $10 of value to me. And that is where most business owners stop. However, if you come in my shop 4 times a month and do so for a year, that is $480 you represent to me.
Once you look at it like this, several things become immediately apparent.
- It is to my advantage to try to get you to come back because I only had to market to get you in the store once. If it costs me, on average, $1 of advertising to get a new customer, that means if you come in one time, my marketing costs are 10%. However, if you become a repeat customer for a year, that means my marketing costs are less than a half a percent (this, in case you did not know, is a good thing).
- If I know I have an average net profit of 10%, that means I can spend any amount up to $48 in a given year to make you ecstatic and still not lose any money.
- If I have a choice between marketing to get new customers and marketing to my existing customers, the later has a higher payoff by many orders of magnitude.
In order for any of this to work, you must have a firm grasp of the numbers in your business. If you don’t, stop everything right this minute and don’t do anything else until you understand where every dollar is going.
Category: small business 2 comments »
March 18th, 2008 at 1:51 pm
That’s true Hugh, but I’m still planning to write a book for the NCO’s = New Customers Only business types.
We’re one and it is so hard and difficult sometimes to find properly written books, articles – blogs even – on truly focussing on getting those new customers – which first purchase will be the largest in their ‘customer-life-time’ statistics.
Example: how many wooden floors do you need in say 5 years time?
Most books are on focussing on the repeat sales – back-end marketing. I’m not saying for a NCO the back-end marketing isn’t important, but the front-end is 100 times more important.
Karin H. (Keep It Simple Sweetheart, specially in business)
July 14th, 2008 at 8:30 pm
U got a very legitimate post there. It make sense. Thanks for giving me something interesting to read.