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Have we missed the Point? (How much does it cost for a new customer)Author: martin smith
Have we missed the Point?
(How much does it cost for a new customer)
We all know how much customers are important to us, that obviously and it goes without saying, I say this, because we have just started a small website business, with selling gadgets to a general assortment and also promoting businesses with gadget promotions.
We have looked at various views and systems to acquire a product base and also customer data analysis, with regards to the expectations of controlling a new customer base with long term and short customers, nothing new to all this, and with all the data management system and companies advertising this services, you would think that, this would be straight forward, and up to a point, this was, it wasn't until we took a step backwards to really look at this all this fantastic data, facts and figures.
We first thought how much will it costs to get a new customer, and then we thought we better determine how much to spend on a campaign or a mailing campaign, but first we better calculate what a customer is worth to his business.
Getting a customer to purchase a single product isn't always the ultimate goal of most ecommerce site owners. This isn't however, for all, if your website is just a promoting tool for your product than this is quite the opposite. Most owners can sometimes and fail to calculate what, could be a life time value potential of a customer when determining how much to invest or pay in a campaign.
How do we calculate, how much will it cost!
There can be some very complicated ways to calculate, what could be a lifetime value of a customer. However, there is a simple way to calculate this.
This is to multiply the average sale at your site by the number of times an average customer reorders. For instance, if the average shopping cart size at my store is , lets say £15.00 and the average customer places an order six times per year, the "value" of the customer is £90.00 per year and £450.00 over five years.
If you run a 25% margin of profit with your business, would you invest a year's profit of £22.50 per person or customer to capture and retain one customer that would stay for a lifetime?
What is your average cost to acquire a customer and how does that compare to the lifetime value of a customer? Is your average cost to capture and retain a customer more than a year's worth of profit? Or even less? Those are the types of questions you can ask yourself once you know what a customer is worth to you.
If you thing about it, there is no real no "magic number" for a business to spend capturing and retaining a customer. All campaigns will and must be taken on their own merit, weather it's to retain a single purchase customer or to retain a so called "Gold" customer.
At the time of article, kinder Buneo (ferrero) are promoting to win a 100 fashion bags for 100 days, what do you suppose there strategy is, is to win a new customer or to try to promote they brand, or even to try to keep a new customer and the excepted new customer to keep loyal, to them, by giving them a promotional gift as a fashion bag.
Well I am sure it to promote they brand, but if you won a fashion bag, and the next time you went in confectionary shop, would you buy the same confectionary item, at the time of winning the bag, I supposed you probably would buy that confectionary item again. What ever the answer is, I am sure they have done there home work, to which ever area they have decide to concentrate on, But one of the important thing is to remember when attracting, quality customers, they have significant value to your bottom line. You'll probably want to spend more to get a quality customer knowing that customer's true value isn't tied up in a single purchase.
When you can calculating how much an average or valued customer is worth to your business, you'll probably also discover that a solid or established stores, or website, that 80 percent of your revenue comes from 20 percent of your customers, this is quite common and known throughout any service or pricing structure.
We mention about "Gold" customers earlier in the article, what is a so called Gold customer; Arthur Hughes, vice president/solutions architect for Knowledge Base Marketing in Richardson, Texas. He noted that getting more money out of 'gold customers,' the top 20 percent, is difficult.
"They are already giving you all their business in your category. They are "maxed out,' "he wrote in an article for Database Marketing Institute. "What should you do for them, give those a special services and attention so as to retain them. The people you should market are those just below 'gold.' They have the ability to move up to 'gold,' if you will only encourage them. Building a relationship with customers only works if the customer benefits from the relationship."
Once you have a customer, building a relationship with them is critical. It's through that relationship that a bond is created between consumer and retailer. It's always great to generate new customers, but it's usually much less expensive to hold onto existing customers.
The so called rule of thumb that it's so much less expensive to maintain a customer than to find a new one, "through all our finding and readings we have found that, depending on what you read it calculates between seven and ten time more less expensive to maintain or to keep a customer, and I am sure that you have already heard the saying that "Repeat business is always more profitable."
Gail Goodman, CEO of Constant Contact, a permission-based email marketing solution used by more than 65,000 small businesses and associations, stated that form the finding that "Repeated business is always more profitable." and they also found that, Emailing is the most efficient way to communicate with customers, to keep them informed about new products and services your business offers and to provide coupons and other incentives to keep them returning to your site.
What can be clear is that you can drive repeat sales and customer referrals at a dramatically lower cost than you can generate new customers, this is true and this is what "drives profitability." another notes that once an business can creates a happy customer, that customer becomes part of your promotion team as they are bound to spread the news.
If you can enable your passionate customers to spread the word about you easily, this is another piece of the so called "driving profitability".
As consumers, if we find a product or a company we're excited about, we naturally spread the word. Consumers interact a lot with those who have similar views and needs. Getting sales from a customer's network of friends is all part of the formula for maximizing the lifetime customer value."
The Point is!!
If we go back to the beginning title "Are we missing the Point", what have we learnt, it could cost you between 7 and 10 ten more to win a new customer, repeated business is also more profitable, and we cam simply calculate what it may cost us, to win a new customer, our title, of this article , really points to the situation of, are we drumming our selves to the point of "missing the point," are we trying to hard to compete with all our competitors, not to miss a new customer. From the above information, could we possible create a more portable outcome if we wanted to?
If we look at the above calculations it can cost you approximately 20% to capture and retain one customer that would stay for a lifetime, obviously this is total dependable on your business model and company, but if you turn this around, it could only cost you approximately 2.5% if you concentrate on your existing customers, working on the bases, that it costs 7/10 times less, if you concentrated on a existing customer, if we look at this on a more practical view, we are not saying do not try to win any more new customers, but in your annual budget, it might just be more profitable to allocate some of the budget to the existing customers.
You could say that we would favor to this information, as we are a company that can help you with all your promotional needs, and this would be true, but if you look at it, in a pound and pence situation, what would you rather spend, under these difficult times, 20% or 2.5%.
As I am nearly finish my Engineering degree, In Engineering management ,we find this information , quite interesting in the fact, that they are so many new and brilliant, data analysis system , on how to improve your service our even how to improve your existing client base, please don't get me wrong, these data systems have they own right, to applications , to each sector they belong, and I am sure they produce valuable data and information for all the right job or campaign or with the existing customer data information they have, but a step back and a different view just may save your company money.
Martin Smith (www.gadgetsconnect.net)
About the Author:
A small business owner, and a mature student who is just finishing his degree in Engineering Management ,who is just trying to make life a bit easier, for anyone who wishes to read these articles, still new and hoping to improve as time go by.
Have a nice day!
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