Archive for July, 2008

Would you rather have 10 new customers each purchasing once, or 1 existing customer who has purchased 10 times?

Mike Sukmanowsky responded to my “Conversion is King, but what is a king without his minions?”post and he got me thinking about customers, recency, loyalty, etc..  Mike writes “Conversions are great at telling me what did work or what did happen, but they give me no indication on what we expect will happen in the near future.”

I am not entirely sure I agree.  If I have an online store that sells paint for example and I am getting 100 sales (conversions) a day, and this continued over time then I should see a trend.  If sales suddenly fell to 80 a day, 20% less, then something is wrong, but that is because I am expecting 100 sales a day. 

That being said I love Mike’s definition of a customer, “anyone who has bought from you at least once AND WHO IS LIKELY TO BUY FROM YOU AGAIN.”  This leads us to my original question, “Would you rather have 10 new customers each purchasing once, or 1 existing customer who has purchased 10 times?” 

There are advantages to both of course.  The 10 new customers is 10 new opportunities to ”WOW” someone.  10 opportunities to create a first impression.  Alternatively an existing customer who has purchased 10 times may be an advocate of yours and may be spreading word of mouth.

Mike continues, “Recency is actually a “lead” measure for future conversions. If for example an e-commerce website notices that visitors are allowing more time to pass in between visits, then this is a key lead measure that their sales could potentially be off in the next period.” 

I would like to point out that recency is only important in its relation to conversions. Conversions are the hub of all metrics because it is the most important metric.  Mike has definitely given me stuff to think about.  Thanks Mike.

So I was talking with my co-worker Patrick Glinski about my notion of conversions being the only metric that matters and he brought up an interesting problem with it.  If you have a business, and your only concern is sales (conversions) then over time you will lose because you are ignoring the other parts of your business.  To continue with my Rolex example, if Rolex only focused on the sale, the conversion, and not on the aspiration, eventually everyone who could buy one, would have then Rolex wouldn’t have any new potential customers.

Essentially it becomes a resourcing problem. There are only so many hours in the day to spend on optimizing the various aspects of your business, but neglect any one of them and the whole thing falls apart.  Spend too much time on the rest while ignoring the purpose of your business, to make money, and you end up going bankrupt.

Also there seems to be a sort of degradation over time.  So that metric you had worked so hard on tweaking to be optimal, has now changed.

I still think conversions is the key metric, and the rest are connected through, as Patrick called them “pipes”. The bigger your pipes, the more it aids conversions. the only way to increase the pipes though is by monitoring the other metrics. I have yet to map it all out, but it should be fun!