The Leaky Bucket: Leadgen & Customer Churn (Part 2)
I’m back at it with the posting, #PeteArmy. Like many of you this summer, I have been taking advantage of the wonders of vaccinations to safely see family and travel for the first time in 15 months. How cool is technology?
Now, I owe you a conclusion to the parable of the leaky bucket, part 1. We talked a lot about the bucket (your customer/lead list), and what it means to ‘fill it’ (ad spend, content, channels, offers).
Now how and why does the bucket leak?
- Customer churn — people stop buying. This can mean a couple things.
- Someone could stop buying your product or service, one-off. Maybe they were a habitual customer who’s defected to a competitor. Or maybe more of a “one-time wonder” who was never going to buy a second time to begin with. You need some data on individual users to see true trends here over time.
Otherwise, it will look less like
- “our users purchase 2.3x annually not 2.7 anymore”
and more like
- “sales are down”
- Someone could have a recurring relationship with you (a subscription or contractual services relationship) and cancel out of the ongoing relationship. Or they just might not renew, when the period expires.
- You want to define what “churn” is in these cases. It depends on your sales channels, the nature of your product, the way you structure your relationship w customers. A Starbucks customer who doesn’t come back for 4 months might be considered “inactive”. But a charity might want to keep mailing a donor for 24 months no matter what. You define “customer churn” in this case like you define “a conversion.”
2. List Churn — someone who’s a lead or contact is “aging” or going cold. A lead hasn’t purchased yet, but they’ve given you their email or accepted an offer. They’ve expressed some interest and are a great source of new customers. But this list, over time, grows “stale” or cold. People are moving to another email address or job, changing their habits/life stage, and actively unsubscribing. If it’s a physical list, people often move.
3. Data Changes in the bucket — Sometimes an external event or something qualitative about your customers or leads changes.
- Sometimes an event changes the patterns for new customers and leads to a huge amount of “one time wonders.” When i worked with the Red Cross, they were able to raise $490 million for Haiti earthquake relief efforts and bring on millions of new donors. Digital and mail fundraising that happened to be in market at the time of the earthquake more than TRIPLED its normal response rate. The major humanitarian crisis, and media coverage of the disaster, put the Red Cross and its disaster work front and center. So much money made it to Haiti! But those millions of new donors behaved VERY differently than the normal responders, who give to the red cross on an ongoing basis. There’s a predictable pattern and number (without one of these events), and that went up in smoke when $490M of new customers hit the books (most of them one-time). For the next 2 years, we needed to exclude these haiti-only ‘disaster donors,’ as there were way too many one time wonders to mail them all. Our net revenue would have tanked. Eventually “the big meal” worked its way through the python.
- Other times, it’s a change that happens to your EXISTING customers. At the end of the COVID-19 lockdown, retail business boomed and many ecommerce businesses saw lower results, and extra customer drop off. People were going back to shopping in person for the experience, and people who would have been happy customers 3 months ago no longer were buying at the same rate.
Impacts from leaks
That’s HOW the bucket can leak. Why do you need to pay attention?
- Revenue. Obviously, you need to make money. And because of the fundamental law of gravity that IS the leaky bucket, you will always need to find new people.
- Campaign Net Revenue/ROI: Your cost from marketing spend in different channels may stay the same, but the amount you get BACK may vary as a result of campaign effectiveness. If you’re trying to acquire new people, you might have a higher (or lower) Cost to Acquire Customer than you’re used to. Things may be firing at a rate where you should move money around, if the experts tell you so. Or you might be spending money on EXISTING customers to bring in revenue and the juice isn’t worth the squeeze.
- Digital Channel “quality’/email deliverability If you just fire hose $$ around, or blast as many emails out as possible, the owners of these channels have built-in safeguards that will hurt every additional campaign you launch. Email ‘deliverability’ will tank if you don’t keep new and existing customers engaged with your content, and CUT OFF older and disinterested names. Your digital advertising REWARDS relevance in content, by giving you better placement for less money. So if you blindly spend, trying to get the most people without refining your ads targeting or content, you will end up running out of money! (It’s called feedback score /relevance score for FB, quality score for google)
So now you understand the full Leaky Bucket metaphor. Now what are you going to do about it?
Most strategies roll up to one of these 3 “moves”
The important thing, is to do all three at once! That’s the best way to fight gravity, and keep the bucket as full as you can, for as long as you can.
Follow me on Medium for more of this, and smash that clap button if you liked the bucket saga!
Today’s jam is a classic by Howlin’ Wolf. “My blues is the hardest blues in the world to play,” he said.
https://open.spotify.com/track/2HUZVffVPXvqnrml0gXggp?si=907f81c2840d4f6a
