A continuous threat to the health of any company is the loss of customers.
That makes prospecting efforts all the more important, because newly acquired customers are worth more in the future. Profits rise because repeat sales rise, and most profits come from repeat sales.
Your catalog’s attrition can be mapped using many variables. Recency, or how long ago customers made purchases, is the most common. Total spending, average amount spent, method and type of purchase are common variables used to estimate attrition by customer segments. Demographics and psychographics also may be helpful predictors.
A common strategy for marketers is to re-contact all customers who made a purchase within a certain time frame, typically two to three years. This may vary based on seasonal demand, but customers who haven’t made a purchase after a certain length of time are dropped and assumed lost through attrition.
All Customers Aren’t Equal
While the popular method of dropping customers after a prescribed time period is simple and easy to implement, it assumes all customers are equal, which is rarely the case. The diagram “Re-Contact Profitability” shows the profitability of such efforts using customer segments based on recency and the amount of their first purchases. The dashed line shows the break-even point, below which the organization loses money when re-contacting customers.
Notice how an organization with results like those shown would likely make an overall profit contacting all customers for 24 months. However, some customers are in segments that are contacted at a loss. Other customers are in segments that could be contacted profitably if reached beyond 24 months.
In some cases, such as low initial orders, customers are unprofitable if contacted within a few months. It’s likely you’ll spend more money re-contacting them during the next 24 months than you made on the initial sales. In other cases, such as a higher initial sale, the highly profitable results more than make up for a loss in lower segments, but re-contacting is no more frequent and stops at the same time if no second purchases are made.