September 26, 2021

Profit Above Replacement Customer

"Profit Above Replacement" customer ... PAR. If baseball has "WAR" or "Wins Above Replacement" player, marketing should have something comparable.

When do you need to replace a customer?

For most of my clients, once a customer fails to purchase in the past year, the customer needs to be replaced. Could the customer still purchase? Absolutely. But the odds are working against you at Recency = 13 months and beyond.

The graph below shows us how much profit a customer generates in the next year based on the recency of first-time buyers.

At Recency = 13 months, the customer is worth $4.50 of twelve-month profit. The customer has become a "replacement customer" ... s/he needs to be replaced as his/her value is now low and only forecast to become lower.

The orange curve illustrates how important the "Welcome Period" is ... during the first three months on your customer file the customer is generally worth at least $7.50 of 12-month profit.

When customers buy for a second time? $33.83 of twelve-month profit (in this example).

When customers buy for a third time?  $44.72 of twelve-month profit.

When customers buy for a fourth time? $50.59 of twelve-month profit.

Seventh time? $95.87 of twelve-month profit.

So yeah, when the customer is only worth $4.50 of twelve-month profit, it is time to find a replacement customer.

And yeah, you better work hard to convert the customer within three months ... because anywhere between $33.83 and up to > $100 of future profit is out there to be harvested from the customer.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.

Well, You Got Me Fired

I'd run what I now call a "Merchandise Dynamics" project for a brand. This brand was struggling, badly. When I looked at the d...