That may seem like an obvious question, but the answer isn’t.
Though most companies consider a customer a customer once they have purchased from them, smart marketers know better.
In the direct marketing catalog industry, companies need to know all their numbers or they’ll go out of business in a hurry. Many of them have found they don’t even consider a customer a customer until they get the 2nd or 3rd order.
This is because many people will buy once and never again. What a smart business does once they know this is offer promotions, specials or premiums to make sure those customers order that critical second or third time.
Although they may have to spend significant money to get that second or third order, it will usually cost much less than it cost to get that first order. Turning a one time purchaser into a long time customer is usually well worth it.
What is your normal reorder cycle? If your customers normally buy every month, then after 3 months with no orders, consider the account lost. Whatever your normal order frequency multiply it by three to define what is a lost customer.
When I had my mail order catalog company, we ran reports every quarter to find out who didn’t buy that quarter and then we made them special promotional and offer to get them back. I considered them a lost account if we had no orders in 3 months.
Your business will have its own numbers, but not knowing them is costing you money.
Here’s another example I heard about lately. Expert marketers in the dry cleaning business have calculated that they needed to get someone to drive to their business 6 times to make them a solid customer in the future.
In essence, once you driven there 6 times, (3 times to drop off cleaning and 3 times to pick it up) your car drives itself to the cleaner without you thinking about it from then on…
Then they’ll keep you as a customer until they ruin something or otherwise mess up your order.
Using this knowledge, a new dry cleaner dominated his market quickly by offering amazing deals like clean anything for $1 – no limit. People came from a long way
away to give him their cleaning. He ran three promotions like this – each one with a little bit less of a discount each time.
After a couple months he stopped the crazy promotions and had all the customers he could handle at his regular prices. He accomplished this for a lot less money and much quicker than he would have with a traditional advertising blitz.
By using his money to give his customers great deals instead of spending it on advertising, he effectively bought a lot of customers quickly.
The mail order catalog industry routinely does this too. Only rarely can a catalog company acquire new customers at a profit. Their profit comes from the future orders.
A few years ago, I was helping a client analyze a mail order catalog business acquisition and we included in the acquisition cost the cost to get another 250,000 customers
at a cost of $6.00 each.
That $1.5 Million was a real cost we’d incur to build their customer list to a large
enough size for the company we were buying to be a viable business so it was included in the analysis of the transaction.
Find out what these numbers are for your industry, and you’ll be a much more effective and profitable marketer.