By Jake Pasini, VP, AI & Revenue, Listrak
How important is new customer acquisition for retail brands? As a big Metallica fan, I’d argue that perhaps the best way to state the significance also happens to be the title of the band’s 1992 hit song: Nothing else matters.
Here’s why: If we take a more eagle-eye, full year (removing seasonality) view of new customers – defining ALL orders & revenue within the first 12 months from an initial purchase as ‘New’ – then they become the lifeblood and biggest drivers of e-commerce revenues.
Just look at the numbers. If a brand has been around less than a decade, it’s possible upwards of 80 percent of annual e-commerce revenue comes from these new customers within the prior 12 months. Even expanding this to some very large, mature brands that are decades old, they still will usually have 35-50%+ percent of annual e-commerce revenue driven from new customers within the prior 12 months. Lastly, even for legacy brands and big box stores, there will still be about 25-30%+ percent of annual e-commerce revenues coming from new customers within the prior 12 months.
Fade to Black: Factoring in retention rates
Regardless of how great your brand is, the size of your marketing spend and the quality of your products, the fact is, every customer has an expiration date.
Overall, 85 percent of lapsed customers (hasn’t purchased in the last year) won’t ever buy again. If a customer has bought from you four to five times, but has not made a purchase in the past year, there’s just a six percent chance they ever buy from you again – yes, louder for those in the back – 6% or less! If a customer has made one purchase, and then hasn’t bought again in the past year, it’s more like a measly one to two percent chance of them buying again – eek.
It’s hard to get repeat orders and all customers eventually stop buying from you – it’s just a fact of life up there with death and taxes.
The realities around retention rates mean that you always need to be acquiring customers, and in particular, high-quality new customers.
Now for some good news: If you could find a 10 percent improvement in your new customer acquisition rates or a 10 percent increase in how much they spend, you could have a 6% percent improvement to your overall business – with no additional marketing spend – wow!
Now, the even better news: It is very easy to both increase the number of new customers and increase order sizes and customer lifetime value (CLV) – so theoretically a 12% increase (6% from gaining more new customers and 6% from them being better new customers) is highly obtainable.
Solution 1: Fuel – How to Acquire Better Customers
The secret is to understand that not every customer is going to drive the same degree of growth – and adjust your marketing accordingly.
Here’s an analogy: If you had 10 hours of study time to divide across five classes, you might expect to study two hours per class.
But not every class requires the same amount of study time; some classes are more difficult, in your major, and demand more time, while some are a relative cake walk, your grade is locked in, or they aren’t in your major.
Humans love ‘balance’ and ‘fairness’ and ‘being evenly split’ but the truth is that optimization is the opposite of that. Study for the classes that need it. Similarly focus efforts on bringing in better customers instead of just any customer.
If you assess all your customers by sorting them highest revenue with the brand to lowest and look at them in groups of 10 percent (a decile analysis), typically the top decile (top 10 percent) of customers are going to drive 50-55% of all your revenue, while half of your customers will only drive 10% of revenue. This is very similar to the Pareto Principle (80/20, 20/80) in that 10% of customers drive 50% of revenue and 50% of customers drive 10% of revenue.
Typically brands are marketing to everyone in the same way, however to turbo-charge growth, it is essential to identify who the best customers are – and go acquire more of them. Perhaps your best customers can be identified by product category, i.e., customers who buy more expensive items. Or, optimal customers might be identified around a channel as the source, i.e., TikTok, Meta, or paid search. It could be gender, location, or any other variable but usually there is a variable that if you split it by, you have segments who are 10-20x more valuable than your average customer.
So first, determine how you can identify your best customers, and then, change your budget accordingly, maxing out your bids on the category that has the highest value, with the goal of bringing in more of those customers. Change everything: bid more in paid media on those terms, bring in more of those products, improve the product pages of those products, personalize acquisition tactics for those users, etc.
Make these changes and you will start bringing in better customers who spend more, repeat more, and unlock incremental growth for your business.
Solution 2: Acquisition optimization tactics – improve signup and first order conversion
There are several tactics you can use to ramp up your new customer acquisition tactics including:
- Focus on recency. If someone is doing something on your site, market to them about that thing.
- Deploy gamification Customers love spinners and inquisitive language such as “see your special offer” (+15% and +20% improvement respectively).
- Design high-converting popups. Two-step pop-ups with email first then phone number 2nd can generate a 35% improvement in opt-ins. Make sure you have a compelling headline, clear value proposition, minimal form fields and exit options.
Additionally there are some top acquisition sinkholes to avoid. Make sure to not be Lacking a clear call to action (CTA), have overly intrusive cookie banners, and asking for too much information are all surefire ways to deter your customers.
The bottom line
Spoiler alert: You will eventually lose every customer that you have. Nothing lasts forever, and the way to grow your retail business is through constant new customer acquisition (and improving who you bring in as those new customers).
By realizing that “nothing else matters” besides new customer acquisition, identifying your ideal customer profile, and deploying proven tactics to acquire more such customers, retailers can ensure their brand’s success, now and in the future.
