Today’s economic conditions require businesses to squeeze every penny out of each transaction. Doing this requires an in-depth understanding of customer behavior so that the marketing and service strategy optimizes the return. In our video “How to Get the Most out of New Customers”, I talk about the importance of recognizing hit and run customers before they cost you money. Franck Silvestre responded by asking, “Could you explain why hit and run customers cost money?”

Franck, it’s tempting to think of all new customers as being equal. They are contributing to cash flow and look alike when they make their first purchases. We, as marketers, are used to people becoming long term customers after the first buy. This is why so many companies focus more on acquisition than retention. Historically, 95 percent or more of the people who bought once from a company would continue to buy if there wasn’t a major service issue. Marketing worked something like this: Find the best sources for customer acquisition, provide incentive to buy, and reap the rewards of lifetime value.

Things are different now. People are using the Internet to find the companies selling the products they need. With a few clicks, they can compare prices, service, and shipping charges. In other words, people have options and they are using them to get the best deal.

In our analysis, we see as much as 60 percent of new customers leaving after their first or second purchase.

Think about that for a minute. Before the Internet, five percent or less of the new customers acquired were hit and runners. It wasn’t enough to raise any flags. After the Internet, 60 percent are hit and runners. This is a huge difference that has a direct effect on the profitability and success of the business.

The scariest part is that traditional marketing metrics don’t identify hit and run customers. The newest members to the database continue to receive marketing materials until they cycle out of the active segment. This escalates costs without providing any return on investment.

Let’s say that your company invests $2 per month in marketing dollars for every active customer in your database. Activity is defined as having purchased within the last twelve months. The average acquisition is 1,000 customers per month.

The annual marketing costs for each customer is $24 which means that you are investing $288,000 annually in marketing to newly acquired customers. If 5 percent are hit and runners then $14,400 of your marketing budget is wasted. The costs of identifying those customers would exceed the initial price. When that number jumps to 40 or 60 percent, then $115,200 to $172,800 are lost. The sooner you are able to identify the hit and runners so you can stop marketing to them, the less it will cost.

A few business models thrive off of hit and run shoppers.

WOOT! is a good example. Their prices are so good they naturally attract customers. Once people find out about the site, they watch for the deals. Contrary to the social media marketing myths, most companies can not replicate this activity. Thousands of followers, fans, and updates don’t convert into cash without an effective marketing strategy that includes customer retention.

Growing your business requires customer acquisition. If you aren’t continuously bringing in new people to replace the ones who are completing their buying life cycle, your company is dying. Newly acquired customers fit one of three types. Adapting your marketing strategy to maximize your return is the best way to move your company forward. The three types are:

Active: Moves into the buying cycle and stays until the lifespan is complete.

Discount: Only purchases sale or discounted items.

Hit-&-Run: Purchases once or twice and never returns.

Watch the video for tips on how to market smarter.

For tools to help measure customer acquisition, retention and costs, check out our Customer Loyalty Toolkit.

Keeping customers actively engaged in the buying cycle should be the top priority of every marketing manager. The first step is knowing exactly what your customers are doing from the first purchase to the last one. This video shares the top five questions you should ask about your customer acquisition and retention along with how to look at data so you can answer them.

Traditional marketing metrics don’t provide the insight needed to identify hit-&-run customers or monitor behavior as people move in and out of your buying cycle. Investing a little time in digging deeper increases customer lifespans, revenue, and profitability.

The worksheet included in the video is part of our Customer Loyalty Toolkit. All you have to do is add the data. Everything else you need to calculate acquisition and retention is in the toolkit.

Social customers are people who buy from your company and actively promote it online. They may be any place within the life cycle. These customers are extremely valuable. When they mention your brand to their community, they provide social proof that your company, products, and services are good. Their value doesn’t stop there. These customers are consistently proving to order more often and place higher average orders than their non-social counterparts.

In most companies, social customers are only a small segment of their customer file accounting for 1% – 8% of the total number. The count is consistently growing, but connecting the dots between social and customer activity is challenging. Google+ is the only social platform that requires people to use their real name. None of the networks provide access to email addresses at this time. The lack of reliable information makes searching for your customers online is a tedious and inaccurate process.

Capturing user information at customer touchpoints is the best way to connect with the people who matter most on the social networks. When they provide the connection data, you know they are interested in connecting with you and what platforms they are using. The number of social platforms is increasing every day. Investing resources to create a presence on all of the platforms will not generate a return on investment. It is better to focus your efforts on the two or three platforms where your customers are most active.

Establishing a social media presence requires participation from marketing and customer care. The best strategy is for the marketing team to handle the outgoing content and promotional messages and customer care to manage the daily interaction. People speaking to you or mentioning your brand indicates that they are interested in connecting with your company. Your customer care team is already well trained to converse with customers and prospects. Social media uses different tools, but the needs are the same. People don’t want to wait for someone to find the answers to their questions.

Connecting with customers on social platforms moves us directly into one-to-one marketing. It allows companies without bricks-and-mortar stores to establish relationships beyond transactions. The benefits are great when it is done well. The challenges are different from other channels but can be overcome. Creating a solid foundation for capturing information and building a community of customers and viable prospects is critical to the long term success.

Measuring the effect of social activity requires a good benchmarking strategy that allows you to see cause and effect. If you don’t have one, establish it before heavily investing in the social side of your business. If you aren’t measuring the results, you risk wasting valuable resources that could be used to grow your business.

This post is an excerpt from our new guide, “Marketing to the Customer Life Cycle.” It is part of the Customer Loyalty Toolkit which also includes “How to Measure Customer Acquisition, Retention & Costs” plus two worksheets that simplify the process. The Toolkit costs $20. Yes, this is a great value. No, I haven’t lost my mind. The $20 bundle price is an introductory special.

Click Here for More Information about the toolkit

The purpose of business is to serve customers at a profit. This one sentence tells you everything you need to know about the metrics that matter. The numbers that help improve service, customer management, and profitability need to be measured. Getting these three components right is the key to corporate success.

The metrics most commonly used in social media to measure success have no effect on the things that really matter. Fans, followers, likes, plus ones, and Klout rankings are better suited for cocktail conversation than business strategy. They don’t affect sales, service, or satisfaction.

Social media metrics are misleading because they can be artificially inflated without providing corporate value.

If you want more followers, follow some bots so they can attract more bots. If you want more likes or retweets, say something funny or controversial. The activity and content that increases your social media reach rarely sends people to your website or business. If your goal is to be big in the social media world, focus on creating content that improves your Klout. It’ll let you wear the “I’m big on Twitter” t-shirt with pride and get the occasional perk. But, if you want more sales and profitability, focus on the metrics that really matter.

Implementing a benchmarking program that is updated regularly and includes key metrics is the best way to measure marketing and service performance. The trends provide an early warning system so you can alter your course before financial reports are affected. Metrics to include in your starter benchmarking program are:

Customer retention: Go beyond the standard active customer count to identify customer retention by acquisition year. Established customers are more valuable because they tend to have higher average orders and purchase more frequently than their newer counterparts.

Customer acquisition and activity: Compare the number of new customers, their average order, and repeat purchases with historical data. Are the numbers trending up, down, or holding steady? The trend lets you know if you are acquiring long-term buyers or hit-and-run shopper before over investing your marketing dollars.

Service levels: Monitoring service key performance indication like call volume, length, number of calls before resolution, backorder, delivery times, returns, and so on provides insight into costs and satisfaction.

Marketing and service costs: The costs associated with marketing and service must be diligently monitored to keep them in line with the revenue they generate.

ROI by source, channel, and customer type: Identifying the source of the funds that keep your business going is critical to continued success. It allows you to anticipate future sales and plan costs accordingly.

Monitoring these analytics for trends shows you how social participation affects your business. It measures your influence in orders, dollars, and customers instead of retweets, likes, and fans.

Once your starter program is consistently providing actionable information and you are using it, expand into other areas. The best path for your expansion will appear as you work through the numbers. You’ll see things that make you wonder “why” and “what if.” Use that information to test new ideas, find new markets and customers, and reduce costs.

Creating an effective benchmarking program takes time and commitment. Allow at least a year to get it right and then focus on continuous improvement. There may be some shocking surprises in the beginning. It is not unusual to find a high percentage of hit-and-run customers or low retention rates. Once past the initial shock, implement change to fix the problems and watch your business prosper.