Tuesday, September 19, 2006

Customer Loss

Did you know the average merchant loses 20% of his customers each year? With some businesses it's even worse. Drycleaners can lose up to 40% of their clientele annually, according to American Drycleaner magazine statistics. An expert in direct marketing tactics, believes most businesses suffer a drop in their client base as high as 50% every 12 months.

What's really sobering is the profit impacted by this exodus. Think about your average sales receipt for each customer, times the number of customer visits per year, times the usual length, in years, of your customer relationships. Multiply this result by your net margin percentage, and you'll get the lifetime value for each one of your customers.

If you're like most retailers, your lifetime value per customer runs into the thousands of dollars. Even a loss of 20% of your customers can be disastrous. So what does a guerrilla do to replace this lost business?

Perhaps surprisingly, new research shows that the most productive source of new customers is new residents. The U.S. Census Bureau states that 46% of all Americans moved at least once between 1995 and 2000. That's a lot of people. What's more, in the first months following a move, these people undergo a "hyperspending" phase during which they spend four to six times as much as non-movers.

To understand the full impact of these "hyperspenders," the U.S. Postal Service surveyed new movers nationwide. It determined that new residents spend $7,100 per household on everything from air conditioners to takeout meals during the first weeks in their new community. This is in addition to routine, everyday purchases.

What you should take to heart, however, is that these highly desirable newcomers have virtually no affiliations with local retail businesses. The first marketer in each category, from car washes to pizza parlors, to reach out with a strong, compelling offer, is likely to be the one claiming a new-and long-term-customer.

When you think about the lifetime value each of these newcomers represent, isn't it in your best interest to court them aggressively? Make them an offer that's commensurate with the value they bring. It's in your best interest to do so.

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