The Power of Repeat Customers

I was speaking on the phone with a client the other day, and he asked me about ways he could increase his business (he has a retail store). He started asking me about places he could advertise to try to attract new business.

Well, there certainly isn't a shortage of places to advertise, but it occurred to me that most businesses trying to grow frequently focus on one aspect: getting more customers.

The truth is, there are actually THREE ways to grow a business.

1) Get more NEW customers (this is what most businesses try to do).

2) Get your existing customers to spend more with you each time they visit.

3) Get your customers to visit you more often.

It seems simple enough, but everything you do in your marketing efforts will generally fall into one or two of these methods.

Now the problem with many businesses using the first method the most is that new customers can be expensive to acquire, compared to the other two methods. In fact, numerous studies show that it can be between 6 and 10 times as costly to get a new customer than it is to get a previous customer to return.

This is such an important concept, that I'm going to give you an example of what I mean. Let's suppose that you ran an ad in your local paper, and the ad cost you $500. And let's say the ad brought you in 20 new customers. So each new customer cost you $25 ($500 divided by 20).

Now imagine that you took that $500 and did a mailing to your customer list. On the lower end, you can expect between 6 times as much of a response than you got from the newspaper ad. That's 120 previous customers. Which would you rather have? 20 new customers or 120 existing customers who already know you and buy from you? Me? I'll take the 120 any day.

And it gets even better. Retail researcher and author Paco Underhill recently conducted research that showed a previous customer will spend on average twice as much as a new customer.

So it seems the easiest customer to get to come in your store is a previous customer. So how do we get them to come back? That's the topic of my next post.