Your customers are not worth as much as they used to be. You're acquiring lots of new customers, but they aren’t providing enough revenue. Who’s to blame?
Acquiring the wrong kind of customers won't just limit your potential earnings. It could be actively costing you money. It could be time to reassess your priorities.
The drive towards performance marketing has no doubt improved marketing efficiency. But many companies are pushing towards flawed KPIs. Striving for efficiency in the wrong area can be dangerous.
Marketers have gotten very good at driving volume, but volume doesn’t necessarily provide value. Acquisition departments are usually quick to point out that driving revenue from existing customers isn’t their job.
Driving revenue is everyone’s job! It’s true that the CRM (or Retention/Engagement) department hold the primary responsibility. But, no matter how good your CRM department is, they can’t drive significant revenue from customers with no potential. Cheaply acquiring a large volume of pigs is unlikely to result in a database of princesses.
Sometimes we in acquisition marketing can be guilty of seeing customers as numbers on a spreadsheet, rather than real people. Some customers don’t have the means, time, appetite or desire, to be high value customers. The easiest customers to acquire are always those that are price sensitive, open to switching and actively looking. They are also the hardest to make money from.
In a vacuum, a 'New Customer' has little to no impact on the bottom line of the company. One sale, one registration or one deposit doesn't move the needle. It's the potential of what a new customer might bring that has created the acquisition marketing field. Typically we compare the cost of acquisition with the average customer value; if your average customer is worth £100 and you're operating at a CPA of £50, you're doubling your money right?
Not every customer is created equal, and your CRM team will never be able to make a customer profitable if they don't have any untapped potential. Garbage in, garbage out is a popular phrase in data analysis. It applies equally well to customer management.
Most marketers are familiar with the 'Pareto Principle', but sometimes it’s popularity leads us to not question it’s validity. Relying on a small number of customers for revenue is a risky business. Lose some heavy hitters and your bottom line will take a hit. If we accept that only 20% of our revenue is going to come from the core of our customer base, we won’t do anything to change it. The Pareto Principle creates a self-fulfilling prophecy.
Focusing acquisition on volume feeds the bottom end of our custom value spectrum. As such, good quality accounts in the middle get lost among the rest of the 80%. Consider instead focusing your acquisition strategy on acquiring more valuable customers. Can result in a much healthier distribution of revenue.
By acquiring less low value customers, the CRM department can make more efficient use of their resources. The customer pyramid theory is my favourite way of demonstrating this effect.
The bottom tier, referred to as the “lead tier” consists of customers who actively cost the company money. This segment costs more in resources than they provide in revenue. Time is a resource, and many companies spend a large proportion of theirs servicing low value customers. Taking away time that could be better spent servicing customers with potential.
The advice from academia is to free yourself of your ‘Lead’ customers. However, the real world has been slow to catch up. Instead of freeing ourselves of these customers, we battle to acquire more and more of them.
While it's unfair to point the finger exclusively at acquisition. The KPIs they are set may be encouraging them to work against your best interests. But getting your priorities right in acquisition, is the only place to start. If you don’t, you’ll leave your CRM team trying to turn lead into gold, and pigs into princesses.