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It’s cheaper to retain a current customer than to acquire a new customer. Customers are appreciating assets. It’s not about customer delight; compare the cost of marketing programs against benefits. Jesse Albright has worked with companies to improve customer equity, increasing loyalty systems to as many as 40 million members. Marketing programs should be implemented only to the point that it increases the customer lifetime value (CLTV). See Good Customers and Bad Customers below.
|
A GOOD CUSTOMER |
Year 1 |
Year 2 |
Year 3 |
|
A BAD CUSTOMER |
Year 1 |
Year 2 |
Year 3 |
|
Number of orders per year |
2 |
3 |
4 |
|
Number of orders per year |
2 |
2 |
2 |
|
Average order size |
$90
|
$95
|
$100
|
|
Average order size |
$90
|
$90
|
$90
|
|
Total revenue |
$180
|
$285
|
$400
|
|
Total revenue |
$180
|
$180
|
$180
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales % |
70% |
65% |
60% |
|
Cost of sales % |
70% |
70% |
70% |
|
Cost of sales $ |
$126
|
$185
|
$240
|
|
Cost of sales $ |
$126
|
$126
|
$126
|
|
Acquisition/marketing costs |
$55 |
$45 |
$35 |
|
Acquisition/marketing costs |
$55 |
$55 |
$55 |
|
Total costs |
$181
|
$230
|
$275
|
|
Total costs |
$181
|
$181
|
$181
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
($1) |
$55
|
$125
|
|
Gross profit |
($1) |
($1) |
($1) |
|
Discount rate |
1.00 |
1.08 |
1.17 |
|
Discount rate |
1.00 |
1.08 |
1.17 |
|
Net present value |
($1) |
$51
|
$107
|
|
Net present value |
($1) |
($1) |
($1) |
|
Cumulative net present value |
($1) |
$50
|
$157
|
|
Cumulative net present value |
($1) |
($2) |
($3) |
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
1.00 |
1.08 |
1.17 |
|
Discount rate |
1.00 |
1.08 |
1.17 |
|
Interest rate |
8% |
8% |
8% |
|
Interest rate |
8% |
8% |
8% |
|
Number of years to wait |
0 |
1 |
2 |
|
Number of years to wait |
0 |
1 |
2 |
|
|
|