Are you extracting full customer value?
There’s value waiting to be found in your customers…
By Angela Hall
Here at The Insight House, when we are speaking to customers about growth, market share, wallet spend or building a brand, we talk about ‘The Power of Plus One’.
But what does it mean? We will come to that the detail, but in a nutshell it ensures that your marketing budget and resources are delivering the best they can for you.
On average, small businesses in the UK spend more than half of their marketing budget on acquiring new customers – but when they do that, do they think about:
>>How much does each newly acquired customer cost the business?
>>How long does that customer need to purchase from you, and how often for you to recover the cost and start to make a profit?
Alternatively, how much value is sitting in your existing customer base? For many businesses we work with, directing marketing budget and resources into increasing the value of existing customers over acquiring news ones, is the most cost-effective strategy for their bottom-line growth.
The commercial reality is that one extra purchase from your current customers could show a much better ROI than the expense of finding and converting new ones.
Think about your own business – could your customers:
- Buy again if they have only ever made a single purchase? Many of our clients have a high proportion of single buyers, who have only shopped once. What does it take to get them to come back – at least once? What can you do to get ‘just one more’ sale from each of them? For example, chocolates can be bought all year round – so if you have a customer buy a birthday gift, they could buy again with a treat for themselves, for a teacher thank you at the end of term, for another birthday or a seasonal box – Christmas, for example.
- Buy their normal purchase one more time than usual? Buy more frequently? Could that habit be bettered? What drivers can up that momentum? We need to ‘slot it into their daily lives.’ Take us to them. Not expect them to find us without a little nudge. Provide the context – think about where your product could fit into that day. Find an excuse to be present. Effectively, we want the customer to do the same thing but more often. It shouldn’t be too difficult to extend my eleven o’clock coffee ritual to the weekend if you guide me to that thought.
- Buy something else outside of their original / regular purchase. Do they even know what else you do, that they would buy? Working with a large distributor of health and safety products – we were constantly asked to help them introduce their customers to the categories at the ‘back of the book’ – not the workwear or hard hats but lesser known products that in effect were bought more often but somewhere else.
Here comes the maths…in a few examples of how the ROI is driven up…
We’ve always proven that working with your existing customer base is always a better ROI that investing in new clients. Both have to happen, but when a customer is gained, work must be done to keep them but also make the most of the opportunity to grow them with you.
An E-commerce business
Say you have a customer base of 500 and each costs you around £40 to acquire, then spends on average, £60 per order. Your profit margin is 45%.
When you invest £2,000 in marketing, acquiring 50 new customers gives an ROI of £430, compared to £4,750 if 50% of your existing customers make one more order.
B2B
In a B2B example, your customer base is 50, £400 acquisition cost and £1,200 average order value. Profit margin is 50%. Again, you invest £2,000 in marketing; acquiring 5 more customers brings an ROI of £3,400 and one more order from 30% of your existing customers creates £7,000 ROI.
Hospitality
Finally, onto a hospitality example…your customer base is 5000, acquisition cost £20 per customer, with an average order value of £20. The profit margin is 40%. You invest £2,000 in marketing; 100 new customers bring you £840 ROI and one more order from 25% of your customer base brings you £8,000 ROI.
Our clients have seen the benefit – many times over:
HMV – adding relevance to the targeting of their communications showed up to 50% increase in engagement and 10 times increase in purchase rate.
Private Medical Insurance – reduced customer lapse rates by 24% in the first year of targeted added-value customer communications.
How will you extract the value in your customers?
As you can see, the strategy for ‘Plus One’ is far more profitable that going for more new customers. For all those existing customers who buy again, they grow their loyalty to your brand, they bring potential lifetime value, become ambassadors, telling others about you, and buying more and more often because you are their brand of choice. But with relevant and timely marketing comms, you are guiding them rather than leaving them to remember you. You lock them in.
In summary:
Challenge 1: A large proportion of your customers only buy from you once.
The Solution: Repeat Order Generator, The Insight House proprietary tool that harnesses the customer’s route to purchase and the behaviours of that transaction to predict their future repurchase score.
Challenge 2: How do you create a more regular and frequent purchase habit?
The Solution: Reasons to Purchase. An event or occasion generator matched to customer potential.
Challenge 3: Too many customers with a small repertoire.
The Solution: Recommendation Engine – our proprietary tool that assigns the correct next product for each customer to make as their next purchase extending them within category and into new categories.
Step into their lifestyle, their needs, identify their problems and bring a solution. When you do this, you give them a reason to: Buy again Buy more frequently Buy more from their current category Buy something else from another category
Investing in that one customer brings so much more value to your marketing spend and delivers a much higher ROI.
Start a conversation with us to find out what value lies in your customers.
The Insight House – insight with an action plan