SURE, WE ALL WANT to get value for our advertising investment. But before you deem your latest campaign a failure, there are two questions that you need to ask yourself:
- What does it cost to get someone in the store who’s never shopped here before?
In Chapter Six of The 33 Ruthless Rules of Local Advertising, author Michael Corbett leads you through the calculations. It’s pretty straightforward. If you spent $5,000 on an advertising campaign and it brought you an additional 200 people then each person cost you $25. - The second number to look at in regard to this customer is their “lifetime” value. By this we mean, “Now that I paid $25 to bring them in, how much will they spend in our store in addition to their very first purchase?”
You just might find it advantageous to spend more to get them in the door because of their future purchases and referrals.
Most everyone has seen Columbia Music’s famous “Buy four CDs for a penny” ads. I forget the actual number, but if my memory serves me correctly Columbia House spends about $40 a customer to get someone to sign up for a penny CD set. Why spend $40 to get someone to spend a penny?
Because over the next 18 months the average customer will spend $185 … for excellent gross profits, even after the $40 advertising expense.
How do you track an ad to see how you’re doing? Well, this is what we did in our store many years ago. We had started a heavy newspaper campaign in Saturday’s paper, 52 weeks a year. It really drove up business. This is what we found, and you can see if it sounds like your store.
The first thing a customer did with us was a simple repair. Our average repair was $65. Then we noticed that after they picked up the repair and felt good about us they came back again with one of their more valuable repairs.
Then about six to eight months later many of them would come back into the store and have something custom-made. That custom sale had an average labor sale (without materials) of $750. Some would have another item made a few months later.
We had figured our cost to acquire a customer was $11 and I was told that was low. I believe we had a low figure because of the amount of referrals we received from the satisfied customers.
So even though the price you paid for your advertising might in the short-term be twice as much as the profit you make from new customer purchases, keep in mind what they could bring in over their lifetime in total. Car dealers figure the value of a lifetime customer at around $200,000. That’s six to 10 cars if they treat you right and get you referrals.
You should also take into account two more points. One is that 20 percent of customers move away or die. You have to replace them. Secondly, it’s about five times cheaper to get an old customer to revisit your store than to get a new one. So use direct mail to keep in contact with your customer list. Don’t ignore them. It costs too much to bring in a new client and your competition is always looking to steal your customers. Keep in touch.
This story is from the May 2003 edition of INSTORE.