March 18, 2021

Customer Development and Velocity

Velocity becomes an important concept in the Emergence stage of Customer Development.

What is "Velocity"?

  • (Life To Date Orders) / (Months On File / 100).
Example #1:  Customer placed three orders and has been on the file for 20 months. Velocity = 3 / (20/100) = 15.0.

Example #2:  Customer placed three orders and has been on the file for 27 months. Velocity = 3 / (27/100) = 11.1.

In the first example, the customer orders 15 times per every 100 months.

In the second example, the customer orders 11.1 times per every 100 months.

The customer in the first example has a faster "Velocity" ... the customer orders more often.

If you are targeting customers as they go through the Emergence stage, go after customers with the fastest "Velocity". In my regression models customers with the fastest "Velocity" are most likely to become Loyal.

Once the customer becomes Loyal, Velocity becomes much, much less important.

If you want to evaluate cohorts of acquired customers, be sure to measure their average Velocity over time. You'll likely see that some cohorts have poor Velocity, signaling key issues with the customers you acquired.

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