May 8, 2020

Ponder for a moment, if you will, how much each lead costs you. Then ponder again for a moment, if you will how many of those leads turn into sales – and then estimate the cost per purchase! For an increasing number of businesses I talk to the cost per transaction is higher today than at any time in the history of the business – meaning that the pressure on margins is higher than at any time in the history of the business.

Now, ponder for a moment if you will, the cost of each repeat business sale. Then ponder for a moment, the cost of each referral. If the outcome of your pondering is similar to mine, then I am sure you will have concluded that:

  • Returning customers and referrals have a lower acquisition cost.
  • Referred customers and referrals are easier to sell to, given higher trust.
  • Returning customers and referrals are easier to convert.

One study found that – the probability of converting an existing customer is 60-70% while the probability of converting a new prospect is 5-20%.

In addition, research has found that:

  • The average repeat customer spends 67% more in months 31-36 than they do in months 0-6.
  • Lowering customer churn rates by five per cent can increase profitability by 25 to 125%.
  • 77% of consumers are more likely to buy a product when learning about it from friends.
  • 74% of consumers identify word-of-mouth as a key influencer in their purchasing decision.

These are just some of the thousands of findings that point to the significantly higher return on investment that can be secured by focusing on repeat business and referralsCombined, these ponderings and statistics provide an insight into the importance of repeat business and referrals and alarm about research suggesting that only 3% of businesses have documented a repeat business and referral strategy.

Do you have repeat business and referral strategy?

For me, these ponderings and statistics point to the critical importance of focusing on the lifetime value of each and every customer and having a documented strategy to maximise both. A recent survey in the United States confirmed the old maxim that 80% of profits come from 20% of clients and that 20 % of clients invariable represent repeat purchasers and refers. The 80/20 rule is alive and well – but may not be operating the way you think. Another study found that referred customers have a 16% higher lifetime value, consumers are 4 times more likely to purchase when referred by a friend and referral tools can boost revenue by as much as 3 times

So, what does this all mean to you, and how should it impact your approach to marketing and in particular digital marketing? In my view it the implications of these findings include:

  • At a certain point, the priority of every business should shift from enquiries to LTV
  • This, in turn, involves developing a comprehensive life-time value marketing strategy

A comprehensive strategy focusing on lifetime value needs to address:

  • Enquiries
  • Conversion rates
  • The average sale
  • Margins
  • Repeat business
  • Referrals

The job of marketing does not stop and indeed must not end with the enquiry or even initial transaction.

With all of your marketing, it is important to ponder, or indeed pose for your consultants, questions like:

  • Having generated an enquiry – how are we facilitating a conversion?
  • Having secured an enquiry – what are we doing to sell up and on?
  • What strategic competitive advantage are we highlighting drive margins?
  • Are we building and fully leveraging a database to drive repeat sales?
  • Are we fully exploiting our database to build relationships and referrals?

In the digital marketing context, it is essential to be sure that:

  • Your SEO and online advertising are driving qualified enquiry
  • Due attention is paid to cookies and remarketing
  • The right mix of information is provided to each enquirer
  • Chat capabilities are available wherever possible
  • The purchase process is intuitive, and customer-focused
  • Strategies are in place to minimise abandonment rates
  • Possible associated products are well presented
  • The competitive advantage of all products is clearly communicated
  • You have in place a customer relationship management system
  • The content management system is actively worked and leveraged

Getting these things right before you start advertising for new customers will in addition to maximising the lifetime value of each customer – significantly reduce marketing costs. Focusing on lifetime value is one of the keys to maximising the return on investment in your marketing.

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Few things can drive profitability more than maximising the lifetime value of an enquiry. For most businesses, an enquiry is expensive to secure. As such maximising the return from that enquiry makes perfect sense. Maximising the return from every enquiry,...

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