It was a Monday morning and I arrived at my office at 9am. My business partner was panicking and running around the office like a chicken with his head cut off. “What’s the matter?” I asked in a concerned tone. He told me that our main computer had crashed and that all of our data was on there. I figured that we were fine because we backed our data up on a zip drive every Monday. Well, it turned out that we hadn’t done this in almost a year! I then started to panic. I thought about all of those customer emails, phone numbers and addresses that we had lost. What were we going to do? How were we going to market to them? What if they never bought from us again? We tried to figure out what was wrong with the computer but couldn’t. I raced the hard drive down to the local computer store and fortunately, they were able to save our data and our database was back! We learned a valuable lesson that day. We need to back up our information daily. It also made me realize how valuable our database is.
What is the most valuable part of your business? Is it your inventory? Is it your $10,000 computer? Your enormous location or space that you conduct business at? If this were a scantron test, the correct answer would be D – None of the above. The most valuable part of your business is your database.
You could have the greatest idea in the world or be inventorying the most remarkable product but what good is it if you have nobody to sell it to. How you find these people is through your marketing. Like anything in life, it’s necessary to find out how much something costs to see if it’s feasible. So, how much does your marketing cost? This is a critical exercise that any business owner should run through. Figure out what your cost of acquisition is for a new customer or “COA.”
Total Marketing Dollars / Total New Customers = Cost of Acquisition
We have created another formula in our business that we call “CAR” or cost of reacquisition. This is what it costs to get an existing customer to buy from us again.
Total Marketing Dollars / Total Additional Transactions from Existing Customers = Cost of Reacquisition
Most businesses will find that it costs anywhere from five to ten times more to earn a new customer than it is to keep an existing one. In one of my businesses, my COA was $15. My CAR was $3.50. This is a clear sign that it makes a lot more sense to market to my existing customers than to new ones. I know many business owners who don’t even spend a dime on marketing to new customers anymore because their remarketing, or marketing to their existing customers, is so effective and they have terrific referral systems in place to earn new customers for them. In my restaurant delivery business, I have several direct mail campaigns that involve postcards. They are new customer postcards, lost customer cards and anniversary customer cards. New customer cards go out every Monday for all of the customers that ordered from us the prior week. The lost customer cards go out every month to everyone that has not ordered in over six months and on average, order fifty dollars or more in food. Anniversary cards go out monthly to people one year after they placed their first order. Here are the results for my return on these investments throughout the year 2011:
New Customer Cards – 17% ROI
Anniversary Cards – 12% ROI
Lost Customer Cards – 9% ROI
The longer that a customer does not do business with you, the less likely they are to do business with you. The old analogy of “Out of Sight, Out of Mind” would apply here. That is why it is so imperative to market to your database consistently. I have heard numbers such as ten percent of your customer base forgets about you every month that you don’t have contact with them.
Restaurants may be the best example of an industry that does the worst job of this. Very few restaurants have systems in place to capture the information of their customers to stay in contact with them. Most people will walk into a restaurant, request a table for two, eat, pay and leave. They do not once give them their email address, phone number or address. If a restaurant was to burn down to the ground the next day, what percentage of their customer base would be informed about where the new location is going to be. Makes you think doesn’t it?