December 27, 2021

But We Generate Profit From Our Loyalty Efforts

You probably do!

Let's assume your 12-month buyers have a 27% rebuy rate, and if they repurchase they spend $150 each. Let's assume you begin the year with 100,000 of 'em. Let's assume 35% of sales flow-through to profit. Let's assume that you spend $10 marketing to each customer during the year.

Now you ramp-up your retention/loyalty efforts ... you spend $300,000 to increase rebuy rates from 27% to 29% and to increase spend/repurchaser from $150 to $160. This, by the way, is TERRIBLY hard to do.

What does the story tell us?

Two really important points.

First, sales increased nicely (about 15%) resulting in a modest profit increase of about $83,000. So yeah, you generated profit from your loyalty efforts. They "worked". You likely paid for a chunk of your salary.

Now what happened to the customer file?

  • Old Scenario = 100,000 * 0.27 = 27,000 active customers.
  • New Scenario = 100,000 * 0.29 = 29,000 active customers.
You didn't materially change your future trajectory, did you? You still need to get the 73,000 new customers just to keep the bus moving.

This is why I keep imploring you to focus on new/reactivated customers. You need as many of 'em as you can get, because loyalty efforts generally don't move the total active customer needle.

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