October 26, 2011

Death Spiral: New Customers vs. Loyalty

Here's an easy one.  Businesses locked in a Death Spiral are, for a myriad of reasons, unable to acquire enough newbies to offset the customers being lost.
  • Example:  100,000 twelve-month buyers, 45% repurchase = 45,000 customers ... 25,000 reactivated customers ... 15,000 new buyers ... total buyer file next year = 85,000 customers.
This isn't a challenging query to run.  Just run it, monthly!!

Management is going to have a natural reaction ... they're going to suggest that if customers were just more "loyal" or more "engaged", you wouldn't have a problem.  Unfortunately, that's not true.  Repurchase Rates vary by +/- 10%, on average ... so if you did everything right on repurchase rate, you'd have the following situation.
  • Example:  100,000 twelve-month buyers, 50% repurchase rate = 50,000 customers ... 25,000 reactivated customers ... 15,000 new buyers ... total buyer file next year = 90,000 customers.
In other words, new customers are a bigger indicator of a business in a Death Spiral than changes in customer loyalty is.

Run this query on a monthly basis, and communicate your findings to Management.  If you are in Management, demand that somebody run this query for you, you need to understand this relationship!

Profit per New Customer

It's common for folks to measure cost per new customer. Total Marketing Cost = $10,000. Total New Customers = 130. Cost per New C...