you. That puts you in opposition to the thinking and behavior of the pack.
These days, I spend a lot of my time as a facilitator and supporter of people traveling their own chosen paths, building businesses of their own choosing.
One of my more recent departures from the movement of the pack was when I founded my current company, The Newsletter Pro. While most of my friends were starting internet-based marketing companies or SEO (search engine optimization) companies, I was going into the “old-fashioned” print newsletter business. Yes, printing. On paper from trees. With ink. Producing newsletters for businesses, sent to their customers. By mail. With stamps. Not email. Not ezines. Not social media. Print newsletters.
Naturally, there were naysayers who told me my business model would never work, but again I disregarded the pack. I ignored the numerous articles predicting the demise of the post office (a constitutionally guaranteed service). I ignored the articles on predicting Facebook world domination and went on creating my business, which in four short years went from an idea to mailing millions of print newsletters annually, and it is still growing month in and month out today. At The Newsletter Pro, we have clients in professional practices and various businesses, some mailing thousands, some mailing tens of thousands of the newsletters we prepare for them every month. Combined, we are a little “underground resistance movement” against digital depersonalization. Most importantly, we get stellar results.
While I have found success in the print newsletter business, I understand that others still find it to be an odd choice of niches. I agree—it is a bit odd—but there is a method to my madness.
Since 2002, I have always been hyperfocused on customer retention. So much so that when I bought my second business, a dry cleaning pickup and delivery franchise, I chose it because of its apparent exceptional opportunity for customer retention. I had figured out that if I could simply keep every customer I signed up—forever—my business would grow faster, be more secure, and be more profitable. Keeping customers is success. Losing customers is failure. Seems simple, but for many business owners, it’s a revelation!
One of the reasons I purchased this franchise was because the franchisor said it had great customer retention rates and the logic made sense. The franchise owners would drive by their customers’ houses on a weekly basis and check for a bright green bag on the front porch. If the bag was there, on average, that person had $25 worth of dry cleaning in it, which equaled out to $50 per month because the average person put out their bag twice. There was no extra charge for the pickup or delivery of the clothes. No wonder they had such great retention! Who would drive their clothes to a dry cleaner when they could have them picked up and delivered for free? Surprise. As logical as that seemed to me, every customer failed to agree with me!
I assumed as long as we didn’t lose or ruin anyone’s stuff, our retention would be off the charts, and I was mostly correct. My goal for this business was to get to $25,000 per month in gross sales. The math was simple: If I had a customer average of $50 and wanted to get to $25,000 in gross sales, all I had to do was sign up 500 customers, assuming once I signed up a new customer, I didn’t lose any of them. In the end, I had to sign up 750 customers to get to 500 using customers. Some 250 people either tried us a few times and never used us again, or left for a variety of other reasons.
Our primary method for signing up new customers was to go door to door in high-end neighborhoods. Hard work. It took me 12 months of door-to-door sales to hit my goal of 500 using customers. Had I retained 125 more customers, I could have shaved more than two months off of my door-knocking efforts or increased sales by an additional 25 percent or $6,250 per month had I decided to knock on doors for two additional months. Today, I am much more sophisticated in how I build businesses for myself and for clients, and much more focused on creating retention, rather than presuming it is earned just by good service.
I tell myself and my clients: You can’t keep 100%. But we should find any significant losses unacceptable. We should be hyperattentive to attrition versus retention. Here’s why.
Back in 2002, I looked at customer retention and used the above simple math to calculate what losing customers was costing me in both dollars and extra time spent growing. Although my math was correct, I was only looking at a small piece of the puzzle. Because I was only using basic calculations, I wasn’t seeing all the money I was leaving on the table when losing previously loyal customers. These numbers became clear, however, once I started using more advanced calculations, which we will walk through in my next chapter. I will also share a case study where we go in-depth on the real cost of a lost customer. You will see, clearly, how financially fatal that retention failure can be!
Dan Kennedy talks a lot about knowing, doing, and using “Money Math.” There are many different aspects, many of which he explores in his book, No B.S. Ruthless Management of People and Profits, Second Edition. He would tell you that of all the Money Math that you need to understand and manage, none of it is as closely linked to how much or how little wealth is created for you by and in your businesses than preservation of customers over long periods of time—except in very high transaction, once or twice in a lifetime purchase businesses, in which case, retention of customers’ goodwill and interest in order to get referrals again and again over time is important.
Because of Money Math, I made yet another move away from the pack in business. I do not just think of myself as an entrepreneur. I also think of myself as an investor. By the time we’re through here, you will too!
by Dan Kennedy
The best motivation for redirecting your energy and investment from pursuit of new customers to retaining, better monetizing, and multiplying the customers you have is going to a “money math” class. In this book, Shaun Buck does a masterful job of presenting the true math of the lost customer. Frankly, it’s a bit of a slog. You have to stop, think, and calculate. It’s worth it. Please do. Other chapter contributors also point to the math. Here, I’d like to start you with a simple but profound calculation. It requires you to know a number you probably don’t know, and it’d be better if you gathered up some information rather than guesstimating.
The number to know is: What does it cost you to get a new customer?
This is the cost of all your public advertising, marketing, promotion, promotional discounts on first transactions, plus some allocated percentage of your entire overhead—the same percentage as new customers contribute to revenue—added together, then divided by the number of new customers occurring, by month and by year. If, for example, you have three stores of some kind, and you spend $15,000.00 a month on advertising on radio, TV, print, online, plus 20 hours of yours or an employee’s “doing” social media (20 × $50.00 hour = $1,000.00), and your rent, light, phone, payroll, taxes and other overhead is $60,000.00 a month and you find that 30% of your revenue comes from new customers who never return equals $20,000.00 . . . . your total tab for getting new customers works out to $36,000.00 for the month. If you got 300 new customers, the cost is $120.00 each.
In “big thumb math,” then, the lost customer costs you $240.00, because you invested $120.00 to get him and it’ll cost $120.00 to replace him.
Getting a grip on these numbers is very important. This is how you make informed decisions about your marketing investments.
Most business owners are underinvesting in marketing, by the way, thus stunting and restricting
