It’s odd, but a lot of owners of small businesses don’t know how much a loyal customer can mean for their bottom line. By figuring that out, you should have a better idea of how much you’re willing to risk or invest to bring in a solid, dependable customer. Additionally, the calculation will highlight how crucial it is to maintain your current clientele. Gaining a new customer is much more expensive than keeping an existing one and even increasing their value.
3. The conversion ratio is the proportion of new customers who become average repeat customers. This will undoubtedly change depending on how you got that new customer. For instance, a first-time buyer who used a coupon with a high price would be less likely to return than a buyer who made their purchase based on a friend’s personal recommendation. You might want to compute this data using several different standards and then average them to get a more precise result.
4. What is the typical life cycle of a new customer? Once you have a customer, how long will they stay with you before they leave, become irate, or no longer need your product or service? This duration is typically expressed in months or years. Though it might be more challenging to obtain, try your hardest.
How to Calculate the Value of a New Regular Customer First, you must define what a regular customer is in order to calculate the gross sales value of a new regular customer. Through a careful audit you can determine this information. It goes without saying that “regulars” can visit several times per week or several times per year. So, set those criteria. A typical fast-casual restaurant might set that frequency at three or four times per month, whereas a more upscale establishment might set it at three or four times per year.
You simply multiply your average check by the average regular frequency number after that. We use the average check rather than the average guest because it will be a more accurate figure for local store marketing (LSM), as there is only one person who influences the dining decision. Let’s say, for illustration’s sake, that we’ve established that you typically receive checks once per week for an average amount of $10. We then calculated that the value of a new regular customer is $520 yearly by simply multiplying 52 weeks by $10. Even though this is straightforward, many operators fail to consider it, which results in them flying blind.
There is only one more critical piece left to complete the LSM puzzle: What Is Your Conversion Ratio? In our experience, it takes between 12 and 25 percent of first-time buyers to produce one new regular customer, though it can reach as high as 50 percent for more recent locations with super operations. The point is you should not guess. You know exactly what you have to work with from your research, so you don’t have any delusions about what it will take to increase your sales. Let’s say you find out that your conversion rate is 25%. To reach your objectives, you are aware that you require 193 additional regulars. So, to get 193 regulars, you need four times as many “first-time buyers.”
Simply put, you are very likely to acquire 193 new repeat customers by bringing in 772 first-time buyers (under the right circumstances). Additionally, those 193 will produce $50,000 this year and $50,000 the following year. Therefore, your objective will be to draw in an average of 64 to 65 new customers each month. Related: Three Steps to Effective Sales Promotions.
Basic Marketing Math That Every Marketer Should Know
Uses for marketing math
Math used to calculate marketing metrics gives businesses important insight into how to engage customers, market products and services, and monitor costs and revenue. Consider several more uses for calculating marketing metrics:
Marketers can learn from statistical analysis about the connections between advertising and consumer behavior. Statistics that aid in determining profitable approaches to branding and customer engagement are supported by marketing analytics that provide insight into consumer behavior, preference, and purchasing habits. Statistical data is crucial to marketing because it provides businesses with financial information about marketing-related activities that can be used to forecast and project future performance.
Another beneficial use of marketing calculations is competitor and market analysis. Businesses and brands can gather data on rival companies to better understand how various industry strategies fare. Statistics are needed for a competitive analysis as well, giving businesses more understanding of how marketing strategies impact industry position, reputation, and growth.
Forecasts and projections
Forecasting and projecting future returns from marketing expenditures can also be done using math in marketing and advertising. Fund allocation, cost analysis, and budget management are frequently included in crucial financial calculations for crucial promotional activities. To measure crucial data that businesses use to manage their marketing budgets, one must have a solid understanding of math for marketing.
Additionally, marketing professionals use math and analytics to come up with workable plans for creating and distributing campaign promotions. Businesses can learn which strategies are most successful for reaching target markets, generating interest in products and services, and boosting sales by monitoring campaign metrics. Businesses can more effectively approach future campaigns and strategy development with greater insight into how audiences receive and interact with promotional messages.
What is marketing math?
Calculations made by businesses to determine the effects of marketing initiatives on brand recognition, competitive positioning, and product and service sales are referred to as marketing math. Performance, productivity, and financial metrics are also included in marketing metrics because they are frequently tracked by promotional activities so that businesses can assess the effectiveness of various strategies. Several metrics this type of business math assesses include:
Types of metrics with marketing math
Mathematical calculations can be used for a variety of marketing metrics, including:
A wide range of elements that affect customer interactions, purchases, and ongoing engagement with a company are included under the umbrella term of marketing performance. Professionals can assess how effective promotional campaigns are using math and statistics. Several calculations in this area of marketing math include:
Sales metrics can be useful for identifying purchases made as a result of marketing activities and customer acquisition strategies. These metrics can be measured to gain understanding of how promotional activities affect sales:
Financial metrics are essential for budget planning, cost projection, and spending monitoring. Professionals frequently assess these metrics to determine how marketing spending, investing, and financing affect profitability. To improve your analysis of marketing finance, take into account the following metrics:
Example of calculating marketing metrics
In order for the sales and marketing teams to assess effectiveness and success, a company is using mathematical calculations to evaluate a number of key metrics. The teams’ calculations include lead conversion rate, customer acquisition cost, and marketing ROI. To understand how marketing spending affects revenue generation, the sales team also computes the expense-to-revenue rate. The marketing team uses the following calculations:
The marketing and sales teams calculate each metric using the following information and the formulas: