Investment Window

Let's run a little simulation, ok?

Let's say that you can acquire customers in 100,000 customer chunks. Your profit per new customer is as follows:

• Best Sources = $10 profit per new customer.
• Good Sources = $0 profit per new customer.
• Average Sources = -$10 profit per new customer.
• Below-Average Sources = -$20 profit per new customer.
• Poor Sources = -$30 profit per new customer.

Let's also say that each new customer pays you back a specific amount of profit per year.

• 1st Year after 1st Purchase = $20 profit.
• 2nd Year after 1st Purchase = $14 profit.
• 3rd Year after 1st Purchase = $10 profit.
• 4th Year after 1st Purchase = $7 profit.
• 5th Year after 1st Purchase = $5 profit.

What is the "right" new customer acquisition strategy to maximize the potential of your business?

Do your homework, and we'll look at possible results tomorrow.

AOV and LTV

In my lifetime value work, there are two consistent themes related to lifetime value.

1. Larger first orders = Better lifetime value.
2. More items in a first order = Larger first orders = Better lifetime value.

Interestingly, any time a human being touches a first order you'll see larger AOVs ... which lead to bigger/better LTV. So where it is reasonable and cost-effective, get a human involved in a first purchase, even if it means that a human is following-up to see if a first order met customer expectations.

But if a human can't be part of the first-order process, use #technology to cross-sell the customer so that the customer adds an item to a first order, ok?

Purchase Frequency, Rebuy Rates, and Lifetime Value

Here's what happens when customers shop infrequently.

• Annual Rebuy Rate = 28%.
• Annual Purchases per Buyer = 1.4.
• Lifetime Value = Low.

Here's what happens when customers shop frequently.

• Annual Rebuy Rate = 75%.
• Annual Purchases per Buyer = 5.9.
• Lifetime Value = High.

Which company is most dependent upon new customers?

• Low Rebuy Rate, Low Annual Purchase Frequency.

Which company is penalized most in lifetime value?

• Low Rebuy Rate, Low Annual Purchase Frequency.

Here's what is fascinating in my work. 

• Companies who most desperately need low-cost / no-cost customer acquisition programs are those with low annual repurchase rates and low annual purchase frequency. They have no choice but to build their entire business model off of awareness that leads to new customers.
• Companies who are most effective at developing low-cost / no-cost customer acquisition programs are those with high annual repurchase rates and high annual purchase frequency. The companies who benefit the most from plump lifetime value totals are the very companies who put programs in place to acquire customers at low-cost or no-cost.

The majority of readers manage a business with low annual repurchase rates and low annual purchases per buyer. These are the businesses that cannot afford to pay money for new customers. And yet, these are the businesses who enjoy paying for new customers.

Christmas Buyers

There probably isn't an easier time to acquire a new customer than at Christmas.

And that's the problem.

There's a price to pay when it is easy to acquire a customer.

In the case of Christmas newbies, seasonal buying trends eat up a lot of the lifetime value that would normally be generated.

When you acquire a customer in October, the customer is "recent" and ready to buy in November/December as Christmas ramps up. This maximizes lifetime value. It's common to learn that October newbies are worth 20% - 60% more than are Christmas newbies.

Where possible, acquire customers in the month or two before your biggest "season" of the year. If you are a gardening brand, you might acquire customers in February/March, just before April/May. If you are a gift brand, you might acquire customers in September/October, just before November/December. Take full advantage of the timeframes when your new customers are "most responsive".

READER COMPLAINT:  Here is what happens when I bring up this topic.

• Reader = "Kevin's idea sounds great, but he's full of you-know-what. We've tried to acquire more customers in October, but we can't find enough customers to scale that strategy. His idea sounds good on paper, but doesn't work in reality."

KEVIN'S RESPONSE:

• This is where your low-cost / no-cost customer acquisition strategy comes into play. Of course it's hard to acquire customers in "off months". You pay money, you don't get reasonable results, and you grumble. But if you had a low-cost / no-cost customer acquisition program in place, you'd be planting the seeds all year so that as you ramped-up the message in October you'd have built up enough awareness that you could generate new customers in October, and then you can harvest a second purchase in November/December.

READER COMPLAINT:

• "I don't like that response."

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 Customer = 10,000 / 30 = $76.92.

It's less common for folks to measure profit per new customer.

• Total Marketing Cost = $10,000.
• Total New Customers = 130.
• Average Order Value = $100.
• Profit Factor = 40%.
• Profit = 130*100*0.40 - 10,000 = ($4,800).
• Profit Per New Customer = ($4,800) / 130 = ($36.92).

In our example, you had to give up $36.92 of hard-earned company profit in order to acquire each of 130 new customers.

Is it worth it to give up $36.92 of hard-earned profit to acquire a customer?

It depends.

If the customer pays you back $65.00 profit in the first year on the file, you absolutely want to give up the profit, because you will make more profit in the next year, with the net of the relationship being a profit increase.

If the customer pays you back $11.00 profit in the first year on the file, you have problems, don't you?

You can't possibly know whether a cost per new customer of $76.92 is good or bad. You just know that the figure looks expensive.

You know all you need to know if you have profit per new customer coupled with lifetime value.

Show of hands ... how many of you measure profit per new customer and combine it with lifetime value to know which tactics you need to employ to be successful?

Pay Attention To Winning New Item Trends

Here's something I see all the time.

2017 New Items.

• 4 Winners.
• 12 Contenders.
• 403 Others.
• Total Demand = $15,000,0000.

2016 New Items.

• 6 Winners.
• 10 Contenders.
• 388 Others.
• Total Demand = $15,700,000.

2015 New Items

• 8 Winners.
• 18 Contenders.
• 357 Others.
• Total Demand = $17,300,000.

You probably create these tables in your sleep, #amirite?

As a marketer, this level of merchandise performance harms your marketing activities.

And so darn often, the marketing team gets blamed for this stuff.

Pay attention to winning new item trends. Is your merchandising team launching your business into the stratosphere (which happens often), or is your merchandising team slowly killing your business (which also happens ... often)?

How Rebuy Rates Are Impacted By Price

Look at annual rebuy rates by items purchased last year and average price per item purchased.

As prices increase, the probability of repurchase decreases, albeit marginally.

As the number of items purchased increase, the probability of repurchase increases.

Look at some of the key relationships.

• 1 item at $100 = 14.8% rebuy rate.
• 2 items at $50 = 17.7% rebuy rate.
• 4 items at $25 = 22.1% rebuy rate.

This is a repeated theme across project work. If you have a choice, you want a customer to buy four low-priced items instead of one high-price item. This gives you file momentum, it helps grow your customer file over time (which protects the health of your business).