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).

Supper Clubs

Wisconsin (especially the northern half of Wisconsin) is home to a proud tradition ... the Supper Club (buy a book about Wisconsin Supper Clubs on Amazon ... click here).

The process is simple. The Supper Club opens between 4:00pm and 4:30pm. You arrive, you sit down at the bar and you order a drink ... typically an Old Fashioned or something comparable. You put your name in, and then somebody typically walks over and takes your order.

When your salad is ready, somebody whisks you away from the bar and to your table, where your salad awaits. But wait, there's more! You'll be offered a relish tray, buns, crackers, and up to 65 pads of ice-cold butter to use on the four buns.

Then your meal arrives ... a steak or walleye (Central Wisconsin) or perch (Eastern Wisconsin) or whitefish (Door County).

After dinner you can relax by purchasing a grasshopper or a pink squirrel.

Then, you stagger back to your car, call your cardiologist, and schedule bypass surgery.

There used to be thousands of Supper Clubs all across Wisconsin. In the past few years, the quantity decreased to maybe three hundred or four hundred. And when you look at who is eating in a Supper Club, you won't find #millennials. By and large, it's an over-55 audience who visit because of tradition and personal relationships.

Sound familiar?

This is what happened to the catalog industry.

If you met with a Supper Club Proprietor, you'll hear a lot of interesting excuses. One told me that he's gonna close for six months because there isn't enough business to be had. He told me that "my patrons have a lot of ideas to increase traffic, but I'm not gonna listen to them, I'd rather just close."

Sound familiar?

You could tell the Proprietor to open for lunch or breakfast ... and you'd be told that this is a "Supper Club, we only serve Supper".

You could tell the Proprietor to create a family-friendly environment instead of the adult-caloric crowd ... and you'd be told that the whole purpose of a Supper Club is to cater to the adult-caloric crowd.

You could tell the Proprietor that a meal with 3,493 calories might be just a bit overboard for just $13.95 ... and you'd be told that the whole purpose of a Supper Club is to enjoy 3,493 calories.

You could tell the Proprietor that a vegan menu might bring in more customers ... and you'd be told that the tradition of a Supper Club is in lake-caught fish and fatty steaks.

Sound familiar?

Industries live and die by adapting to changing times. 

I worked with a company that had a 90% organic percentage ... if you took away the catalog, 90% of the sales would still exist and the company would practically print 20% pre-tax profit rates. The company would be so wildly successful that it couldn't help itself but throw money at employees and the ownership team. What do you think happened?

1. Nobody believed the results of the year-long test, but folks loved to talk about how they were "data-driven".
2. Catalog-centric Executives said "but what would I do for a job if the catalog didn't exist" even though every online process (which were responsible for driving 90% of the sales) wouldn't change one bit. One bit!! They might even improve without the handicap of a catalog to reduce flexibility.
3. Catalog vendors lost their ever-loving minds. They told the Executive Team to "not believe the results of the test" and sold the Executive Team on the merits of a sound catalog program, citing the fact that catalogs "stood out in a crowded online marketplace", whatever the heck that means. Paper reps locked the company into an onerous annual contract. Printers offered myriad technologies to make the catalog stand out. Co-ops demanded deeper prospecting levels to "tickle the buying bone of today's fickle consumer", whatever the heck that means. Vendors rushed to protect "their" business, not the business of the catalog brand.

Sound familiar?

Don't become a "Supper Club". Evolve. Change. Do something!

Or, ride it out and take market share from dying catalogers. That works, too. For awhile.