Measuring Your Number of Customers

I recently read an article which defined the number of customers as Leads x Conversion Rate. Well, this got me thinking. It can't be that easy. You are right. It isn't. It is the goal of almost every business to increase its number of customers. I say, "almost" because it is not always a good thing to increase your number of customers. There are two reasons why this would not be a good thing. Firstly, the cost of acquiring a new customer might be greater than the benefit of obtaining this customer. This can be true in the long run. Quite simply, not all marketing campaigns you undertake will be successful. When determining the success of a marketing campaign, you should always take a long term view since it is quite reasonable to lose money in acquiring a new customer. This is because the profit is made up in the long term. The classic example is a drycleaning business. Even if you only recover 20% of your marketing costs in obtaining a new customer, repeat sales can generally happen very quickly in this industry. In fact, you could have recovered all of your marketing costs by the second or third month. If the lifetime value of a customer is high, then you can profitably obtain new customers with high acquisition costs and low response rates. The second and less obvious reason for not increasing your number of customers is when it is profitable to let go of some of your customers. Some customers cause problems by returning your products, making frivolous complaints and generally taking up a disproportionate amount of time of your customer service staff. Also, if these customers only ever purchase your low margin products, then you can increase your profits by relinquishing these customers. If you have not done this for a while, you should examine which of your customers generate the least towards your profit. The results may surprise you. It is not uncommon for companies to unwittingly carry unprofitable customers. Well, let's get back to how we measure your future customers. It is more than just leads x conversion rate. Here is a more accurate formula for counting your number of customers in 12 months time. Total customers = Current customers - customers who leave + New Customers + Leads x Conversion Rate. You should have a method for defining your number of current customers. For our business, we define a customer as a business that has placed an order within the last three years. You need to distinguish between a lapsed customer and a current customer. Of course, you can only do this if you have a database. Never delete your lapsed customers as they can become your best leads. A lapsed customer is a customer that has not ordered from you for a certain period of time. There are generally two reasons for this. Your customer no longer has a need for your products or your customer has chosen one of your competitors for the same or similar products or services to what you offer. Many new customers are obtained directly. There does not need to be a multi-step process. New customers can be obtained through referrals or through ordering from your website or responding directly to your marketing by placing an order. Other new customers are obtained through leads. This is where you capture the names and contact details of your prospects, usually an email address or physical address or phone number, in order to market your products and services to them in the future. Here are a few ways that leads are obtained. You offer a competition. You give away free information. You purchase a mailing list. You compile a list of your lapsed customers. Someone contacts your company expressing an interest in your products and services. The conversion rate is simply the percentage of these leads which are converted to paying customers. Next time, I will discuss the best way to increase your number of customers. Quite simply, you should reduce the number of customers who leave your business, increase the number of new customers acquired directly, increase the number of leads and improve your conversion rate. The skill is to work out the best way of doing this.