What if there was a different way of understanding your business that would give you more confidence in achieving your goals?
A familiar scenario:
You’re weeks away from your brand’s second-biggest sales event of the year. A lot is riding on this–you need to increase sales 20% over last year. Plans for all your key marketing channels are dialed in. Your landing pages are optimized and your site has been audited by multiple team members.
And yet…you still feel uncertain about your ability to hit your goal. You might not express that to anyone on the team. But waking up on the day of a big event always feels like a crapshoot, no matter how well you prepare. You’re never sure if your marketing channels are going to “work” this time.
And if things don’t work, and sales are pacing below plan…ooo boy. Cue panicked phone calls to your paid social agency and frantic Slack messages to your email team. You run down your emergency checklist. You pull out every tactic from your bag of tricks. And things work out around half the time, despite all of that effort and stress.
This uncertainty never seems to get better. Win or lose, the next “big event” will arrive and you’ll feel just as uncertain as ever. Cue burnout.
But what if there was a better way? A different way of understanding your business? A perspective that would give you more confidence in achieving your goals?
That perspective exists, and I call it customer portfolio theory. In the same way that you diversify your investment portfolio to mitigate risk, you can diversify your customer file to make future sales more predictable. Thinking about your eCommerce business in these terms, in addition to the traditional channel-centric view, is one of the most powerful mindset shifts you can make. It will take you from frenetic uncertainty to calm, cool and collected.
I’m going to go into more detail in future editions of the newsletter, but I’ll outline the foundations of managing your customer portfolio here.
Today’s Sales = New + Returning Customers
Your sales today, or any given day, are coming from one of two places: customers who have purchased with you before, and customers who have not. Yes, your sales are also coming from channels (email, Facebook, etc.), but those channels are made up of customers.
Why does this matter? Because you know enough about your returning customers to predict how many will come back with some degree of accuracy. So your sales goal – your projected sales from returning customers = your acquisition goal.
Today’s Results Are Cumulative
Which returning customers are likely to buy today? Customer behavior is heavily biased towards recency. Most of today’s returning customers were last active in the last 12 months, and a lot of them were last active in the last 3 months.
So today’s sales are a product of the actions you’ve taken over the past year, with an emphasis on the past three months. That shortcut you took “just this once” may not be as temporary as you think. But, like many things in life, consistent good habits are the key to long term results.
Your Actions Today Can Make Tomorrow Easier Or Harder
Now that we’re looking at sales in terms of customers, we can “reframe the game”. In addition to putting together a playbook for each marketing channel, we can shape customer behavior today in order to impact sales tomorrow.
Let’s return to the scenario at the top of the post. You enter the year with a plan for your peak sales days. So in addition to making channel plans 2-4 weeks out, you should be building a customer strategy 3-6 months out.
The best way to crush a sales target is to heavy up on acquisition in the three months leading up to the event. This is just one example. Another example: blasting your email list with promos for two months straight will make it harder to sell to that audience at full price.
Your Customers Are Real People
A lot of brands develop misleading internal mythology around their customers. They use this mythology to break the golden rule–treat others as you would like to be treated. Do you, as a consumer, like to receive 3 emails per day from a brand? Do you like unresponsive customer support? Do you like websites that are confusing to navigate?
Guess what…your customers don’t like this either. It doesn’t matter how cool your brand is*. It doesn’t matter if the tactic appears to work when you take a short term view.
*Certain brands can get away with standoffish or exclusionary behavior–think, luxury brands. But these same brands roll out the red carpet for their biggest spenders or other VIPs.
Changing Behavior Is Hard (And Expensive)
The average person’s default frame of mind when it comes to brands is indifference and impatience. It takes a long time, and a history of positive experiences, to transform the nature of the brand/consumer relationship from a purely transactional one.
Any marketing strategies that depend on changing default customer behavior will not work at scale. Save your time for efforts that work with customer behavior and you’ll see more success.
75% Of Customer Potential is Determined Before The First Purchase
The three biggest drivers of customer lifetime value:
- How much disposable income a customer has
- The natural buying cycle of your category
- How much the customer cares about your category
All of these factors are nearly set in stone before your customer sees an ad or completes their purchase. You can influence the third item with powerful brand marketing, but it takes time (and money). So the most effective way to improve your customers’ lifetime value is to acquire better customers. Although retention marketing is important, it can’t do much to impact these three critical factors.
PS: that doesn’t mean all your customers have to be potential VIPs. You can leverage more casual customers to drive meaningful growth. Just don’t expect them to transform into big spenders overnight.
Managing Your Customer Portfolio
What does all of this mean? You can develop a customer strategy to achieve your growth goals, in the same way you develop a channel strategy. But looking at the business from a customer-focused lens reduces uncertainty because you’re working with the fundamental building blocks of growth–your customers.
Understanding customer behavior helps you understand the future impact of today’s decisions. It gives you more runway to prepare for critical moments during the year. And it helps you understand where yesterday’s growth is coming from, and what you’ll need to do to meet it or beat it.