Eight metrics to acquire and retain customers

Apr 01, 2009 9:30 PM  By

Sure, you want to — or need to — do more with less these days. Every marketer does. The challenge is how to significantly cut spending without significantly decreasing sales, or how to maintain revenue without mailing as much.

The inherent risk in most cost-reduction strategies is the assumption that cutting circulation or trimming marketing spend is the answer. Many marketers think that if they just mail the right people, they won’t need to mail “all those catalogs.” And certainly you can get the sales back by pushing more e-mail, right? Not so fast.

Multichannel marketers must be careful right now to fight the tendencies to cut back in huge measures. You have to keep an eye on the numbers so that when the economy turns around — and it will — your business will be poised to rebound right along with it.

Here are eight numbers to keep an eye on while you’re working hard to do more with less. While the numbers that are produced are interesting and meaningful, the real value comes when you put in the effort to watch the data over time to evaluate trends and understand the magnitude and impact of your analysis.

For each of the following, try to draw a picture in a three-year timeframe, from three years ago to now, and track the trends at regular intervals moving forward. Only then will you know if you’re really doing more with less.

  1. Customer retention rates

    As you look to get more out of your spend, your instincts will probably take you to pay-per-click (PPC) advertising and various online models of acquisition where it’s “cheaper” to get a customer.

    There are many caveats here, but perhaps the biggest is to be aware of your customer retention rates across all of your acquisition methods.

    The question to be answered is this: How many customers do I keep from period A to period B (for instance, year 1 to year 2) within each (blank)? Your job is to fill in the blanks with as detailed an acquisition vehicle as possible.

    You shouldn’t be asking about retention rates just from PPC vs. catalog acquisition, you should be looking at retention by keyword phrase and by mailed list and segment.

    The key is to take a detailed enough view to make surgical changes in your plans. You want to cut with a scalpel, not a chainsaw.

  2. Cost to acquire a customer by channel

    As suggested above, the cost to acquire a customer by specific channel and entry point will be critical as you fight to do more with less. That’s because your efforts to maximize sales and profits during down times are likely to result in a pull-back on prospecting efforts.

    The result: You must understand what you’re paying to get a customer and where your best buyers are coming from so that you can maintain file counts in coming years.

    Without maintaining a consistent base of customers, your business will begin a spiral that can generally be broken only with large future investments. So the best way to stave off having to pump huge sums of money into your business to bring it back to life is to smartly manage your acquisitions in the short-term.

    As a benchmark, you’d like to acquire customers at breakeven or, more aggressively, to the point where you’ll make back the investment in the first six to 12 months.

  3. Keyword conversion rates

    The cost to execute PPC programs will continue to rise as competition increases for a narrower set of targeted search terms. As this happens, the cost to acquire a customer via these terms, as noted above, will rise.

    One way to fight the rising costs is to continually optimize the conversion once customers get to your site, focusing on those terms that are already producing the greatest returns and ROI.

    Again, the analysis here shouldn’t be centered on PPC as a program, but rather on individual search terms. You must understand which search terms are most brand-enhancing and produce the stickiest long-term buyers.

  4. Contribution per square inch

    When cost cutting measures are put in place, page counts for printed catalogs often get trimmed. As part of your catalog’s square-inch analysis (“squinch”), you should be paying particular attention to contribution per square inch, or profitability per square inch of selling space, at the item level.

    Contribution per square inch is among the best indicators of overall product efficiency we can monitor, and should be a primary focus when determining which items stay and which go when page counts get trimmed. Plus, when it’s monitored in conjunction with the next metric, contribution per square inch can be a powerful number for optimizing your overall merchandise mix.

  5. Online merchandise productivity (OMP)

    Examining online merchandise productivity is equivalent to running a square-inch analysis for your print catalog. Simply put, OMP looks at units, sales and contribution per page view for each product sold online.

    Like contribution per square inch in the offline environment, contribution per page view tells you how productive each item is at the “per real estate” level. (Real estate online is a page view or customer exposure.)

    By tracking contribution per page view, and marrying the data to your offline squinch, you can set up your site for maximum sales and profits by featuring those items that are most efficient across both channels.

  6. Coefficient of determination (CoD), Web and phone orders

    Cutting mailings can have a significant impact on your overall business. To understand the impact that your offline programs are having on your online sales, you can run a statistical analysis to determine the coefficient of determination between your online and offline orders.

    In short, CoD is the shared variability between two data points — in this case, phone orders and Web orders.

    To run the test, use Excel to calculate the correlation between your daily phone orders (driven almost exclusively by the catalog) and your daily unknown Web orders. Square the correlation coefficient to get your CoD.

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  1. For example, if the correlation is .9, CoD would be .81. Said another way, 81% of the movement in Web orders is directly related to movement in phone orders (i.e., is driven by the catalog).

    Knowing this number is essential before you cut any of your existing mail plans. That’s because it will help you pinpoint the degree of loss that you’re potentially facing by reducing mailings.

  2. Cumulative contribution per catalog mailed

    This is another metric associated with mailing smarter. Contribution per catalog mailed is a calculation meant to give you visibility to profitability at the “piece mailed” level.

    You must understand profitability from an order level and a customer level, too. But at the circulation level, you’re able to see quickly where breakeven comes in. By studying cumulative contribution per catalog mailed, you can manage the overall campaign to ensure that you’re maximizing sales and profits as you need to — without leaving dollars on the table or throwing money down the drain.

  3. Cart abandonment

    Talk about an essential number to manage. In today’s environment, if you’re able to get a customer to put merchandise in her shopping cart, close the sale!

    Studies indicate that 52% to 59% of carts are abandoned after merchandise is placed in them and before checkout is complete. While all business types affect the overall benchmark data, the key here again is to monitor your rates over time. This is an area where you don’t want to run with the pack, you want to dramatically beat it.

    There are several tips and tactics for increasing conversions and bringing customers back to your site to complete abandoned transactions. Some include sharing shipping fees early in the checkout process, improving internal search, and executing comeback e-campaigns to those who’ve abandoned.

    You should also provide complete details for returns and exchange policies up front. The key is testing and managing the process from first click to confirmation.

BUILD A BIG PICTURE AND WATCH IT These eight metrics are not the end-all in managing your business. Rather, these numbers are indicators of the current state and trend of your business based on the changing landscape of multichannel marketing — or what I like to call Catalog 2.0.

By bringing these data points and some of your other favorites into a single report, you’ll be able to monitor the health of the business and the effects of your marketing decisions much more quickly. And this means you’ll be able to turn up your efforts — or turn them off — more quickly.

Steve Trollinger (stevet@jschmid.com) is executive vice president of J. Schmid & Associates, a Mission, KS-based consultancy.