What Separates Winners from the Pack?

customer-retention-v2
3 customer analytics well worth doing right now- part 2

 

In part one of this three part series we outlined three primary tactics to grow you small business Response Modeling, Customer Lifetime Value modeling and Segmentation as follows:

1. Response Modeling- this addresses a product offer – 37% more of the leaders use it.

The advantages of a correctly developed response model are enormous. By zeroing in on just those consumers most likely to respond to a product offer, the marketer is able to specifically craft the mailing to each consumer.

2. Customer Lifetime Value modeling, which is customer retention–   35% more than non-leaders

Customer lifetime value is a critical metric for any business. Those that are able to measure and maximize the lifetime value of their customers have a distinct competitive advantage over those who do not.

3. Segmentation – understanding the strata of your customer and needs – 33% advantage

The process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment.

 

Per part one Response modeling: tracking tactic results and identify cost data to whatever returns the most for the least amount of resources.

 Now here’s a more in depth view of  Lifetime Value Analysis…

Lifetime Value Analysis

What information will you need:

 

    • Historical sales data by customer

 

    • Historical acquisition costs (Optional)

 

Building the model

 

    • Using captured archival data to historically and determine by client the revenue per month to determine the monthly financial value of each customer

 

    • Log the activity over the the total number of months for each customer

 

A simplified mode

As an example suppose  company called 800Razor, which sells disposable razors directly over the web. Perhaps you have a customer model that looks like this:

Some customers will buy the cheapest offer, some other ones will buy more products (e.g., male and female razors).

 

 

    • Bottom end: 24% of customers = 14% of the revenues

 

    • Middle 56% = 56% of the revenues

 

    • Top end: 20% of customers = 29% of revenues

 

The four ways to grow this business:

 

 

    • The lifetime value of the average customer is $171.

 

    • The average acquisition allowable is between 20% to 25% of sales.

 

    • Taking the low end, 20% of the $171 average is $34.

 

    • Four ways to grow this business:
        • Get more customers à Can we lower the cost?

       

        • Get the existing ones to buy more expensive razors (upgrade) àGive them an incentive or trial offer

       

        • Get the existing ones to last longer à Give them an incentive to stay

       

        • Get the existing ones to refer new customers à Reward referrals

 

A quick decision grid

 

 

Number of Customers

 

Lifetime Value of Customer

 

How many months will he last?

 

Maximum Acquisition Cost

 

Action

          3,000  $          68                    8  $              14 Create a retention program to extend the “life” from 8 to 12 months generating an additional $34 in revenues. Allowable: $6.80
          9,000  $         114                   12  $              23 Increasing from 12 to 15 months will only generate $28.50 per person. Increasing from $9.50 to $11.00 generates only $18 per person.
        16,000  $         132                   12  $              26 Increasing from 12 to 15 months will generate $33 additionally per person; allowable is $6.60
        12,000  $         225                   18  $              45 Increasing the average monthly sale from $12.50 to $15 will generate $45 incremental per person; allowable is $9.00
          8,000  $         255                   15  $              51 Increasing from 15 to 18 months will generate $51 additional per person; allowable $10.20
          2,000  $         228                   12  $              46 Increasing from 12 to 15 months would generate an additional $57 per person; allowable $11.40
     50,000  $      171    $          34

The same logic can be applied to creating referral programs.

As with all these programs, it is important to test, evaluate and refine, which we addressed in the previous column.

 

RELATED POSTS

Hispanic Business Leadership for Uncertain Times

Hispanic Business Leadership for Uncertain Times

How to make delusional optimism work for your Hispanic business this year Congratulations to you and your business if you are in a position to grow your business and bring in a new employee as we progress into this new year. Thank you for your decision to take the...

Reclaiming Our Life In the Age of Technology

Reclaiming Our Life In the Age of Technology

Implementing a digital detox doesn't require drastic measures, but has multiple benefits In an age where technology infiltrates every facet of our lives, the importance of a digital detox has become increasingly apparent. This concept of consciously stepping away from...

Your Brand Is Not What You Think It Is…

Your Brand Is Not What You Think It Is…

Let’s talk about FEELINGS... If you look at today’s marketing and business headlines, there is a lot of chatter about BIG data and AI - it’s everywhere. This compelled me to recently tweet the following “It’s all about BIG data these days but we must never forget the...

Video Gallery

Polls

Sign Up for the Latin Biz Today Newsletter

PR Newswire

Featured Authors

Innovation & Strategy

Money

Talent/HR

Legal

Marketing

Mi Mamá Es Una Brava

Mi Mamá Es Una Brava

She was fierce, unapologetic, unselfish and brava. Editor's note: This is a reprise piece from Gaby Alcantara Diaz remembering her late parents and brother.   Over 21.2 million (all) immigrant women reside in the United States since 2013 with many traveling by foot,...

Culture

Fashion

Food

Music

Sports

Work & Life

Mindfulness

Health & Fitness

Travel & Destinations

Personal Blogs

Pin It on Pinterest