In the internet era where physical assets turn to digital assets, appraising the real value of your business becomes a challenge. Assets that include your website, your visitors, your creative assets, your customers, and essentially all data that you own is considered your own online real estate. It could be worth a fortune or could be worthless depending on the number of users and your ability to monetize it and turn it into a profit.
One type of asset that is considered extremely valuable is your online customers or existing users.
Existing customers or users don’t always have to purchase directly from you, but they are considered users who are familiar with your business and are likely to return more than once, thus, having a higher value over a user who has never heard about your business.
If you have been selling a product or service online before, you know that customer acquisition is the most challenging part of the business. The extreme challenge of getting a customer to purchase a product or service profitability from you can feel like an invisible hand that regulates the amount of competition in a given space.
If it was easy, competition would skyrocket in literally every possible industry. The fact that getting customers is so hard and so expensive cause businesses to shy away from re-investing in ads aimed toward their existing customers because they feel that they already paid the advertising toll to convert them the first time.
Businesses feel they shouldn’t reinvest more money into a user since they feel they have some kind of virtual ownership of the user. Some advertisers do run seasonal campaigns to target their existing customer base to boost sales and others run small remarketing campaigns as part of their marketing strategy, but a very small percentage of advertisers actually use it as a core part of their marketing strategy.
In many ways, I don’t blame them.
The cost per advertising increases by the day and so does the cost per acquisition. Additionally, in order to grow, many businesses feel that it should come mostly from generating new customers and not from saturating your existing customer base.
If you don’t think about advertising directly to your existing customers consider the following scenario:
If you are in charge of the marketing of an airline company and have a limited budget to market a new destination that you opened up at a special rate. Which audience is likely to give you better results, your frequent flyers, or random people who travel or might be interested in booking that flight with your airline. Where do you predict you will get a better return on investment?
If the main objective of a given marketing campaign is to generate the best return on investment possible, why not leverage the assets that you worked so hard to gain in order to increase the chances of getting the best results possible?
Creating an incremental lift in lifetime value
When we measure the rate of repeat customers and their overall value, we measure the percentage of customers who return to purchase again as well as calculating their lifetime value.
A customer lifetime value is total revenue generated from a single customer. If a customer, for example, makes 3 different orders on your website for an average of $50 each, his lifetime value is $150. It’s as simple as that.
Some businesses that have been operating for several years use this metric to predict an average lifetime value of their potential customers which, in return, lets them systematically plan how much they can invest to acquire or gain a new customer. The higher the lifetime value of a customer the more you can spend in marketing to him or her.
A good example would be subscription-based companies. When you purchase a package from a subscription-based company, the entry fee for your first order is usually lower or includes a free trial of some sort. This model is used on the basis of losing or breaking even on the first order because of the high cost per acquisition of advertising, but profiting after a number of repeat orders under the subscription.
Subscription companies are a good example of companies that market heavily to their existing customers to create an incremental lift in the lifetime value of their customers. Incremental lift is the positive lift that is added to the variable as a result of the added traffic.
If, for example, a customer subscribes for a product and is likely to remain on the subscription for 6 months. Each month costs $20 which gives an average order value of $120. If the company runs a paid advertising campaign that costs, on average, $5 per customer and in return generates an extra $25 in the average customer lifetime value, that value would be now $145. The incremental lift is $25 and the advertising cost was $5. This means that by investing $5 extra in each of the customers, you created an additional revenue of $25. Your incremental return on investment is 5X, which in any market is an insane number because we are not measuring the standard return on investment which can include elevated numbers, we are measuring an incremental lift which only measures the added value.
It takes methodical thinking and careful planning to balance out the right strategy. Growth doesn’t always have to come from new prospecting customers. You worked so hard to get the customers in the first place, wouldn’t you want to invest in your loyal and existing customers who you know are much more likely to purchase from you, rather than investing in someone who has never heard about your brand?
Existing customers have a better conversion rate.
When we talk about conversion rate, it’s important to understand that it can be very volatile and is impacted by many factors. Aside from traffic sources that can kill or radically increase your conversion rate, there is another factor that regulates your conversion rate, and that is your repeat users vs unique users metric.
The higher the ratio of repeat users or customers on your website the higher the conversion rate. That’s why, in many cases, websites that have a low amount of users tend to have a high conversion rate as the majority of the users are returning users or customers. If you return to a website through a search or a direct visit, you are much more likely to make a purchase or a different type of conversion.
A great place to segment your data and see the data clearly is through analytics. As you can see in the example below, returning users have a conversion rate that is almost 3X the number of new users. Their average order value is also greater. The higher the return users rate, the higher the conversion rate, and the better the return on investment from the campaigns.
Think from a paid ad perspective for a second. If return visitors have a conversion rate of 1.9% vs 0.69% for prospecting means that in order to get a conversion from a returning visitor you would need 52 website visitors as 100 visitors / 1.9% conversion rate = 52 visitors. For prospecting, you would need 161 visitors to generate a single purchase. That’s a massive difference.
The average cost to bring the visitors to the website may be different, but for the sake of the calculation, let’s assume the numbers are the same and each visitor costs you 10 cents.
New visitors cost you $16.10 per conversion (161 visitors * 10 cents). Return visitors are costing you $5.20 per conversion (52 * 10 cents).
You don’t need to be good at math to see the obvious difference. If users convert at a higher rate they will have a lower cost per acquisition and a better return on investment. In addition, having a higher than average return on investment from your existing audience campaigns, will enable you to spend more and lower your target ROI on new users as your overall return on ad spend will be higher.
Make them loyal and hooked on your brand
Aside from the importance of increased lifetime value and better return on investment, reaching your customers with paid ads also helps you strengthen your connection with your customers by appearing frequently in their newsfeed and ensuring they stay up to date so that when they are ready to purchase, they won’t forget your brand.
Also, even if they are not ready to make a purchase now, seeing more of your content will allow them to plan ahead and make plans to purchase in the future. It’s a competitive game. The more advanced the advertising platforms are the more they make it easier for your competitors to reach your users since those users that might also be interested in your competitor’s products. If you are not constantly reaching your existing customer base, they might forget your business exists.
How to implement existing customers in your paid advertising campaigns
Advertising platforms have options to target your existing customers by using your tracking pixel or uploading your customer data directly to the platform and targeting it.
The options are endless. You can literally target every customer and segment them by the number of purchases they made, date since last purchase, average order value, and the list goes on. This is not news to most advertisers.
The emphasis here is not how to set up the campaigns to target your existing customers but how to market to them.
I like to take the approach that goes against the most used practices. Instead of targeting visitors with Korney creatives that identifies them as your most loyal customers or offers that are themed around themes like “we haven’t seen you in a while” or “come back and purchase” or even offers like “VIP customers only”, I like the ads to look as organic as possible. If you are an active reader of my blog, you know that I only use and recommend a product-centered marketing approach.
Instead of showing them ads that establish your connection, simply show them product focus creative ads that showcase your offer or products in the best way possible. They will know it’s your brand and they had a good experience on their first orders so they won’t need more convincing. Include your existing customers as part of your core audience when you upload new campaigns. If done right, you will see a lift in your overall revenue and a better return on investment in your ads.
When advertising, most businesses focus their advertising on gaining new customers while ignoring their existing customers. By targeting those who have bought from you in the past gives you the possibility of increasing your conversion rate, raising the lifetime value of your current customers and reducing the overall cost of conversion. That’s a smart use of your advertising budget.