With this article we will discover an important way to look at how profitable is to acquire customers in a given period compared to another.
Let’s assume we are a retail ecommerce startup and we operate in Continental Europe. As you know, Xmas holiday season is often associated with the peak of retail buzz.
During Nov and Dec, potential online shoppers research and buy gifts for friends and beloved ones, with a particular preference on deals and sales, both online and in brick and mortar stores. Hence, most retailers experience spikes in CAC (cost of new customers acquisition) during this time frame.
As we discussed in earlier article on Customer Lifetime, retailers or startups-cofounders should always consider the lifetime value of these buyers — defined as cumulative gross profit of the customer over his or her entire relationship with the ecommerce company – and be aware of CAC vs CLV tradeoffs.
Despite of the higher number of new customers during the holiday months, these new clients come with a deals-based mindset and their lifetime value tends to be lower than average (i.e. because they would not easily come back to purchase online or at the stores when discounts period is over).
In our sample ecommerce business geography for instance the best month to acquire new customers is indeed Oct.
How to find this “best month” to acquire New Customers? we can use a KPI called Early Repurchase Rate (ERR).
ERR is the percentage of new customers from a given cohort who make a repeat transaction within a certain period of their first purchase (usually 30 or 60 days , depending on the business models).
Just as basic example: if you manage to acquire 200 new customers on the first week of operations, and let’s say 50 of these clients also make a second valid transactions within a 60-day time frame, then your ERR(60days) is 25%.
Main goal of this KPI is to measure how effectively our customer retention strategy is in converting first-time customers into repeat buyers with limited effort in marketing activity/budget.
The following graph illustrates the ERR, month by month, from a sample dataset. The timeframe signals the number of newly acquired customers in that month that are making their second purchase within 60 days of their first purchase.
As per chart info below, Oct is indeed the highest ERR month of the year.
So to recap, what is main implication for our startup guys? for e-commerce marketers, then increase marketing budget and activity to acquire new customers in the month that has higest ERR, while also focusing on maintaining a healthy balance between CAC and Customer Lifetime Value in months where retail activity is at its peaks. Early Repurchase rate provides good indicator on acquisition versus retention focus for sales&mktg teams.
Finally keep an eye on how your ERR performs with respect to:
1) Your own business past performance
2) Your competition in the same vertical
3) ERR of other ecommerce of similar customer size