May 14, 2018

Mix Of Unattributed New Customers

New customer acquisition comes down to two important components.
  1. New customers who are acquired via word of mouth, and are largely low-cost / no-cost in nature.
  2. New customers who you pay Google, Facebook, Digital Grifters, Television, Radio, Print, Podcasters, Influencers, and any other combination of thieves and honest middlemen to acquire.
It turns out that (1) and (2) are critically important ... especially (1).

When I analyze a highly successful business, it is common to learn that 50% (+/-) of new customers are unattributed (after working with your five attribution vendors and averaging their very different outcomes).

When I analyze a struggling brand, it is common to learn that 15% (+/-) of new customers are unattributed ... while 85% (+/-) are from clearly defined paid sources.

Here's what is really fascinating.

Word of mouth new customers can be explained by a simple equation:
  • Word of Mouth Newbies = C + X*(Change in Sales Last Year) + Y*(Marketing Efforts To Generate Word of Mouth).
  • C = Baseline.
  • X = Rate that change in sales last year impact word of mouth next year. Think of it this way ... if your sales are in decline (Sears) you get a bad reputation that hurts you the year after.
  • Y = Impact of marketing strategies designed to generate word of mouth.
Meanwhile paid new customers can be explained by a simple equation as well.
  • a*(x^b).
80% of the companies I work with have two significant problems.
  1. Inability to identify quality new merchandise.
  2. Inability to increase new customer acquisition.
And when you dig into the data, you learn the following.
  1. Word of Mouth new customer acquisition is fundamentally broken and Management has not hired the right people to fix the problem.
  2. Paid new customers ... via a*(x^b) ... has been optimized and is now being sub-optimized to keep sales at least flat while harming profit.
What percentage of your new customers are unattributed ... and are likely due to having a sound word of mouth program?

Business Principle #1