August 15, 2011

Two For One

I've never understood the logic.

When confronted with two customers, the folks I speak with routinely prefer Option 1:
  • Option 1 = Acquire a customer via a preferred advertising channel for $10 profit, customer pays back $20 in the next twelve months, net profit = $10.
  • Option 2 = Acquire two customers via online channel or offline mass-media channel for $10 profit, customer pays back $16 in the next twelve months, net profit = $6 * 2 = $12.
I'll take the two-for-one trade any day of the week.  Most people won't.  They'll simply work harder trying to find more customers who pay back $20 in the next year, and they'll pay more to acquire that customer.

Our future requires us to take on more "two-for-one" relationships.  We need to acquire two customers at a lower value (and no, I'm not talking about 20% off plus free shipping as an incentive), and prioritize that over acquiring one customer at high value.  

Honestly, we determine long-term value.  Catalogers, in particular, sabotage long-term value by mailing online buyers twelve catalogs a year, then incorporate 30 day and 60 day matchback windows, meaning that every future order is tied to a catalog, when the customer could be far more profitably mailed four times a year if the business factored in the organic percentage.  This alone changes the long-term value equation in favor of an online customer.

Again, we're going to need to focus on finding two-for-one deals, two customers with lower value that are greater than one customer with high value.