Know-How Exchange : Research/Metrics

Cool question, to which you will get many insightful comments here. Let me start you off with the simplest matrix: Ansoff's product/market development matrix:

Dimension 1: Selling your current products or new products

Dimension 2: Selling to your current customers or new customers

The current products/current customers cell I may get you the 25% growth through repeat business. To increase growth to 50%, think about how you can sell your existing products to new customers (cell II), or how you can serve your existing customers with new products (cell III). The last cell IV (selling new products to new customers) may hold the greatest potential but also the highest risk and required investment.

Dear fionacowlam,

There are basically three ways to increase profits:

1. Find new customers.
2. Increase the frequency of purchases made by current customers.
3. Increase the transaction size of purchases made by current customers.

It's going to be most cost effective for you to market to the people in groups 2 and 3 because they already know of you and want to buy from you.

So your mission is to create incentives for those people to spend more and spend more often. This will make the most use of your marketing budget. If you spend on group 1, you've got to work all the harder to create the first sale, which stretches your resources and which also takes time.

Using special offers and targeting those offers to existing customers will make the most use of your budget. The trick is to ensure that current customers have a compelling enough reason
to return to you again and again.

You can do this by collecting information about them at the point of sale and by using that information to entice them to come back, or to spend more while they're in buying mode (meaning, at the point of sale).

And the more they're spending on the initial item, the less resistance you'll encounter with an up sell at the POS on a lower priced item (an example could be an original transaction of $1,000 that gets an up sell of an item for $150. That adds 15% to the transaction and, depending on your overheads, a sizable lump to your overall profit margin).

Don't just spend marketing dollars on ads, spend them on tangible goods that you can "give away" as part of an enlarged transaction size. These "free gifts" add a huge amount of perceived value and can cost very little per item to buy if they're sourced well and bought in bulk as part of a targeted campaign.

The thing to remember is that 80% of your profit comes from 20% or
so of your customer base. Treat these people well and you'll see an increase in both frequency of purchase and transaction size.

I hope this helps.

Gary Bloomer
Wilmington, DE, USA

There are a number of variables, as it depends upon your industry, your competitive situation and the marketing tools you would use. Comparing against what others have done and what their returns have been won't necessarily help because your situation is unique. The best approach is probably to plan different scenarios with different investments and planned milestones so that you can adjust midstream if your assumptions don't work as planned (which is often the case). Also be sure to think about how you might employ different marketing tools so that your campaigns have synergy and consistency in their content and messages.

jlevin is right that the answer to your question depends on the industry, product category, and other factors. For example, do good customers repeat purchase, or are you selling something that's only purchased once by an individual? If it's the latter, then the purchase frequency opportunity is moot.

It also depends somewhat on the price points at which you sell. Increasing sales for an item that costs $50 or $500 or $5,000 is going to be a lot different than for one that costs $5.

Finally, it would be interesting (and instructive) to know how your customers learn about your site today. Growing 25% without additional investment is a nice trick ... unless the base level of investment is already quite substantial. Why can't you just do 25% more of whatever it is you're doing now?

If you need more specific help, there are several on this forum who can probably make a contribution. If you don't want to discuss details of your situation in a public forum, feel free to contact me offline with the email address in my profile.