New vs Returning Customers: Who’s More Important in E-commerce & Retail?
Whether you’re in e-commerce or retail, your customers are your undisputed gods. The dilemma that a lot of business owners face is: should I focus on acquiring new customers, or should I pamper my returning ones?
There is no easy answer to this question.
Ask any e-commerce expert and they will tell you both are important. But, one has a definitive edge over the other when it comes to your business health.
Let’s find out more on the matter.
Returning Customers will Always Have Your Back
Who are returning customers?
They are the ones who have made more than one purchase from your e-commerce or retail business.
Research shows that such customers have a 27% chance of buying from you again after their first purchase.
Truth is, retaining an existing customer will cost you five times less money and effort than it takes to acquire a new customer. You have to invest 16 times more money to make your new customers spend as much as your repeat customers.
Here the top reasons why returning customers are invaluable:
Repeat customers pour more money into your product or service than new ones. Their spending is 300 times more compared to the latter.
You have a 60-70% chance of persuading a returning customer to make a new purchase. From a marketing perspective, investing your efforts in them makes better business sense than heavily spending on prospects. After all, only 13% of future consumers make a purchase.
Returning customers can promote your business among their peers, adding to your prospective client pool. Never underestimate the power of word-of-mouth advertising, even if it comes from happy customers. The best part? You don’t have a spend a penny on marketing yourself.
On average, 80% of a businesses’ revenue comes from 20% of its customers. Returning customers contribute to a major chunk of it. Don’t forget that how you treat your old customers also influences your ability to acquire new customers.
Returning customers save you a lot of time, effort, and money. That’s why you cannot falter in your relationship with them.
New Customers Help in Revenue Growth
On the other hand, acquiring new customers is the only way of creating a customer base for any business. You cannot have repeat customers if you do not have prospects making their first buys.
New customers are indispensable to your business, because:
They allow you to form the foundation of your customer base.
They help build brand recognition.
They give you insight into what is expected of you, how can improve your current offering, and what to add to your repertoire of services/products.
They can fill in the shoes of old customers who have moved on from your business.
So, new customers are vital to your business growth. They too cannot be disregarded in any manner.
Focus on Converting All Customers to Loyalists
Here’s a startling fact for you: 60-80% of customers who made a purchase from your business and were satisfied with your service might not return for business. One-time customers exist. It’s upon you to reconnect with them and make them repeat customers.
What is imperative for you to understand is customer relationship management is everything.
That way, old or new does not matter. As a business, whether online or offline, your focus should be on building a great rapport with all your customers. Make your customers feel special.
Here a few tips on how to convert new customers into loyalists and retain returning customers:
Keep the connection alive. Customer relationship, like every other interpersonal relationship, needs your attention and effort. Be in regular contact with all your customers. Engage with them on social media outside your business needs. Understand what they expect from you and offer them your best possible service.
Give them rewards. Everyone loves to feel pampered. Don’t reserve your discounts for first-time customers, make sure your repeat customers get appreciated for their trust in you. Discounts, surprise rewards, etc. work well in keeping your consumers satisfied.
Start a loyalty program. It is never too late to jump on that bandwagon. Such programs have proven to increase Customer Lifetime Value (CLV) by 79% in a matter of just 3 months!
The Graphite Note Edge
With cutting-edge predictive analytics in tow, Graphite Note gets you all the data on new and returning customers. Compare absolute figures and percentages, learn how many customers you are currently retaining on a daily, weekly, or monthly basis.
Let the best predictive analytics guide you with your marketing and customer relationship management. Decide which customers need your immediate attention. Plan your marketing and promotional activities to fit the need of the hour.
Your customers are smart and intuitive. You should be too.
RFM Analysis and Its Role in Customer Valuation
"Instead of focusing on the competition, focus on the customer." - Scott Cook
Every marketer knows the customer is king. New age marketers know it is imperative to sift the best from the rest.
Deviating attention from customers who matter or treating them the same as the others can endanger customer relationships. Building a loyal relationship with the best customers or converting prospects into repeat customers can be pivotal in turning any business around.
But how can you evaluate customers based on the value they bring to the company? Enter RFM analysis, a popular and verified method of customer valuation.
Speculated to be introduced in a 1995 article by Jan Roelf Bult and Tom Wansbeek, RFM analysis has remained a marketer’s favorite in understanding customers.
What is RFM Analysis?
RFM analysis is an acronym for Recency, Frequency, and Monetary Value Analysis that enables smart marketers to segregate their customer base. The technique borrows from the Pareto Principle, according to which 80% of a business’s revenue comes from 20% of its customers.
RFM analysis quantifies customers based on three key factors:
Recency - this aspect indicates how recently the customer has engaged with a business. It includes both a current website visit to check out products/services, or a purchase.
Frequency - this indicates how often a customer makes a purchase or visits the website to explore what’s on offer.
Monetary Value - this is a measure of the customer’s spending capacity. This includes the average spend of a customer per visit or the overall transaction value in a given period of time.
RFM analysis helps marketers figure out:
Customers who are loyal
Customers who are likely to make purchases in the near future
Customers who generate the most revenue for the business, including both old and new ones
Customers who make periodic purchases but can be turned into loyal and repeat customers.
The RFM Score
Customers are scored individually on all three aspects. The total tally is an average of all three scores. The best customers score high in each of the three specified fields and have a high RFM score.
Usually, each of the three individual scores is given equal weightage when calculating the average. But this can vary depending upon the types of business you’re engaged in.
Consider a retail business. It is common for customers to make multiple purchases in a small span of time, say a month. The transaction value of retail purchases may not be very high. In such cases, an ideal RFM score can be calculated by giving more weightage to Recency and Frequency.
Why is RFM Analysis Important?
RFM analysis helps businesses understand their customers better and engage with them in a bespoke manner. It can help you to:
Figure out and utilize targeted communication (content + channel) for your customers
Develop, sustain, and improve customer relationships
Trial your product pricing
Upsell and cross-sell across various customer categories.
In short, RFM analysis could make a tangible difference to your business in terms of profitability and customer retention.
Customer Segmentation Based on RFM Analysis
Customers can be segregated into the following categories depending upon their RFM analysis scores:
Such customers keep on buying your products or services on a regular basis. They also tend to have a good spending capacity and make big purchases. They are most likely to try out your newest launches and even promote your business among their peers.
Recent customers who make repeat purchases but are not very frequent fall under this category. These customers, if cultivated well with loyalty programs, discounts, etc. have the potential of becoming loyalists in future.
There are some customers who score high in RFM analysis but do not make regular purchases. Such ‘new entrants’ can be profitable for your business in the long run. Engage with them through various means to increase the frequency of their visits to your website.
Customers who used to make big and frequent purchases but have stopped doing so in recent times fall under this category.
Almost Lost Customers
These are customers who were once among your best but have shown a decline of interest over time. You must communicate with them to understand their change of heart and make every effort you can to win them back.
RFM analysis is a surefire way of allowing marketers to make discernible changes in their practices to help retain customers.
Graphite Note strives to provide such marketers with data stories built with the help of predictive analytics to create a time-efficient, pro-tech solution to their data analysis needs.