These handy-dandy equations give you a ballpark estimate of how much to spend on acquiring a new customer. But they don’t tell you how to spend that money — and that’s where things get interesting.
You know and I know that an MBA is a bullshit degree, but nonetheless, you can learn a few things in business school. You can also skip business school, and learn them via a very handy infographic. Take this one by Kiss Metrics, on the subject of calculating a customer’s lifetime value.
The basic idea is to take an average check, figure out how often the customer will come back, and how long the customer will continue to be one. But these can be crunched in slightly different ways that yield quite different results, as you see at the bottom:
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Obviously, this is a very loosey-goosey concept — hey, they teach this in B-school, so it has to be! — but the basic exercise is important in figuring out how much you should be spending to acquire each and every customer. But as the final part of the graphic lays out, not every customer is created equal — attracting someone that’s a relatively premium high-roller can make all the difference. And even more surprisingly, just increasing your customer satisfaction by 5% can increase profits by as much as 95%:
All of this is fascinating stuff, and it leads you down the path toward the complicated decisions that business managers wrangle with every day. How do you measure your marketing effectiveness? What forms of marketing are most reliable in bringing in new customers?
But you know what? I’m calling bullshit on this. The marketing arms of many companies are very often their most free-spending divisions. And they’re free-spending simply because of calculations like the one above. But let’s think about this: Just because the value of a customer over her entire lifetime is huge doesn’t actually imply that the best way to attract repeat customers is through marketing.
Is it really so ridiculous to think that a better way of attracting customers is to shave your marketing budget and pool all your money into making a better product? I can think of a few brands that do this quite well. One great example is Kiehl’s, the no-frills beauty products and grooming company. Another is the Five Guys burger chain, which is expanding across the country like Kudzu. Both of these companies barely do any marketing at all. But you know what? Both of their products are great, and that’s all the marketing they need. It’s really a shame that more companies in more industries don’t think like that.
source: Co.Design - Cliff Kuang