Another Look at R.O.I.
This is week 3 of 5 weeks, I am sharing the 5 most shared articles I’ve published in the past 12 months. This is from the end of August:
A few weeks ago, I wrote about the Lifetime Value of a customer. It’s something that most new business people don’t grasp because they are focused on the weekly and monthly cost of doing business.
(I worked with one fellow a few years ago when we were both employed by an e-commerce business that would watch the online sales volume by the hour. That’s a little obsessive unless you also look at the big picture.)
And it’s the Big Picture that focuses on the Lifetime Value of a customer.
The example I presented was my own experience with a local coffee shop. I may be a $3 cup of coffee, or a $10 food and drink transaction, but my Lifetime Value is thousands of dollars. You can see how I did the math here.
After I published that article, a former colleague of mine, Peter Presnal wrote to me with his comments:
The late, great Peter Drucker said a business has one purpose: to create a customer. What you’re talking about, Scott Howard, is that customer’s value over time (aka Lifetime Value). It seems to me the only real way to evaluate the effectiveness of an advertising or marketing initiative is how many customers the initiative generates and their value OVER TIME. If it cost, say, $2000 in advertising to get you to show up at your coffee shop the first time, and the shop operated on, say, a 50% gross margin, and even if you were the only customer who got popped then that was a successful campaign…it at this point is a 150% ROI. The problem, as you and I both know, most small business owners would say that a campaign that only popped one person failed…but because that’s only because they themselves failed to look at the value of the customer OVER TIME.
Peter and I crossed paths a lifetime ago when I worked for WMUZ in Detroit which is where I began my journey into the advertising and marketing world. I stayed with WMUZ for 7 and a half years.
Peter has been there over 23 years and has his own website that I invite you to check out at http://socraticduck.com/