Steps to winning repeat purchase in a start-up

If there is one mantra you should adopt now and plan for in your business, it should be that repeat business equals profit.

The reality of business is that it costs anywhere from six to eight times as much to generate a new customer as it does to sell to an existing customer.

And profits only start to accrue from new customers after a second, third or even fourth purchase.

So how can you plan for repeat business in your startup?

First, you must determine upfront the cost of “buying” a new customer for your business. What do I mean by “buying” a customer?

Exactly that.

Instead of guessing how much to spend on sales and marketing, determine how much you are willing to spend to “buy” a customer.

This will give you a more concrete way to create your budgets for marketing, customer appreciation strategies and referral programmes.

So how do you determine the acquisition cost of getting a customer?

Say your $1,000 ad generates 100 phone calls. For each call or lead, you’re paying $10 to drive people to your business. If 20 of those leads turn into buyers, you’re paying $50 to capture each sale.

Let’s also say you can plan for each customer to spend $500 with you, with $100 of that profit.

How often would you continue to invest $50 into marketing?

If you wanted to profit continually, you’d invest those dollars over and over again.

Knowing how much it costs to buy a customer also allows you to plan for and master the numbers around the lifetime value of your customer.

Years ago, I owned a dog food business. My average customer would spend $800 a year on their dogs, and the average dog lived about 10 years.