One of the main reasons why many small businesses fail, is that
they get too many new customers. What's that I hear you say? You
thought you were supposed to get new customers. Well yes, you do
want to get new customers, but only if they come back and buy from
you at least 5 times. Let me explain what I mean.
Each time you market to a new customer it costs you money. This
is known as your acquisition cost. To calculate your acquisition
cost, you need to workout the cost of your marketing, (i.e. the
cost of your ad or commercial) and then divide that by the number
of people who buy from you as a result of your marketing. Note that
we're only interested in the how many people buy from you, not how
many come into your store.
What many people don't realises, is that their acquisition cost
is normally greater, than the money that customer will spend with
you on a first time sale. In fact, in the average business you need
to bring each customer back at least 5 times before you begin to
make a profit on them.
For example, let's look at a bakery. Now if a bakery spends $300
per week on advertising, and then as a result gets 30 new customers,
their acquisition cost per customer is $10. Now if each new customer
spends $5 when they come in, and of that only $2.50 was profit and
$2.50 was hard cost, that bakery has actually lost $5 on each new
customer. If of those 30 new customers, 20 never came back, the
bakery has actually lost $100 on that marketing campaign.
Understand that the average business needs to bring a customer back
at least 5 times, before they start to make a profit from that client.
But amazingly enough, the average business spends 6 times more trying
to get a new customer to come in to their business, than they do
trying to get an existing customer to come back.
So what's the answer? Spending more time and effort on marketing
to get your existing customers to come back, and less on getting
new customers through your door.
