March 16, 2011

Forecast Forensics + Digital Profiles: The Importance Of New Customers

Ever read these quotes about keeping your best customers?
  • "Customer loyalty is the most important factor in the success of a business."
  • "Brands that lead the loyalty game lead the market share game".
  • "It costs eight times as much to recruit a new customer as it costs to keep an existing customer."
  • "You, too, can turn your best customers into faithful brand evangelists."
  • "Fourteen quick tips to launch your brand into loyalty heaven."
There are two things you learn when you use Forecast Forensics to understand your business.
  1. You don't improve customer loyalty, on a long-term basis, by "running a campaign".  In fact, loyalty seldom changes significantly, from year-to-year, and when it does improve for a few years, it is met with a one or two year decrease that resets loyalty back to historical levels.  Seriously, this is true.  Measure it sometime!
  2. We dramatically underestimate the importance of acquiring new customers.
Look at the image above.  This is the business we've been analyzing for the past month.  In this scenario, I decided to cut off new customer acquisition.  In other words, for the next five years in this simulation, I did not allow the business to acquire one single new customer.

Annual demand drops from $26 million to $18 million in just one year.  And it keeps getting worse, by year five, demand is just $4 million.

I'm not saying you shouldn't worry about customer loyalty.  You should!

I am saying that, proportionately, customer loyalty is a three on a scale from one to ten, while new customer acquisition is an eight on a scale from one to ten.

And because nobody talks about new customer acquisition, there is a business opportunity awaiting you ... your competition doesn't understand just how important this topic is. Take advantage of the opportunity that is in front of you.

4 comments:

  1. derek.newman11:09 PM

    Kevin,

    I can attest to the validity of this hypothesis. Our business runs on customer acquisition - our retention is pretty lousy - actually very lousy.

    I like to tell people that for every 2 people that buy from us, one will never come back for a second helping.

    I assume this is a signal of something structurally wrong with our offering. I'm assuming that we can do something much better to keep our customers loyal.

    Cheers

    ReplyDelete
  2. Nope, that's pretty common ... it might even be better than average.

    ReplyDelete
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