I was reminded of this yesterday by discussions in an all-day meeting planning the future of the organisation.
We’re taking a new direction, investing some additional funds and resources to increase and re-shape our marketing so that we can win new business. The meeting yesterday focused on the strategy in the morning, then the tactics in the afternoon – a very productive day.
Towards the end of the day we turned to the subject of customer retention, and realised there was a possibility that some of our new activities, unless carefully communicated, could disappoint and disillusion our existing customers.
We chose to forego some of the whizzy new stuff to keep the existing customers happy. It does not mean we will not do it – just not yet – and the cost to us is minimal. There’s an opportunity cost, to be sure, but it is pretty small.
If you lose 10% of your customers in a year, you’ll need to add 11% just to stand still.
If you break down your revenues by customer, and then by order size you get a formula that looks like this:
Total Sales = Customers x Sales per Customer
Sales per Customer = No of Orders x average order value
So to grow your total sales, you can either increase your number of customers or you can increase the sales per customer. One of those is much harder than the other!
To increase your sales per customer, you can either increase the number of orders (the frequency with which the customer shops with you) or you can increase the average order value.
So, how much of your marketing effort is devoted to your existing customers?