As an entrepreneur who is eager to get your product or service to your audience, you broadcast your message loud and long with what limited resources you have, because you figure that the more people who hear your message, the better. Sound like you?
While it might seem awesome when your analytics show people are visiting your site in droves, a closer look at those numbers might reveal a big problem with long-term effects if you don’t do something to change it.
The problem? All those people arriving at your site are primarily the wrong customers.
The result is they leave without buying. That’s bad, but that’s not the worst part. The larger the number of visitors with minimal conversion means you are actually scoring a lower retention rate. This reduced retention can significantly decrease your ROI and lead to what could be a detrimental company valuation. The domino effect here is that others will view this lower company valuation as a warning sign to not do business with you or provide any additional funding.
Wrong Customers Cost Big Bucks
Here’s the difference: As Larry P. English shared, in his book, “Improving Data Warehouse and Business Information Quality,” quality is free and leads to a 5-10% in sales, but poor quality costs a lot. From the leads and traffic you get to the analytics you use, quality is key to maximize your return and maintain your value.
As Michael Morton noted in his article on why quality data is essential to your analytics strategy:
“Imagine you spend $20,000 per month on a campaign to a highly targeted set of 100,000 customers in a specific market. Assume the annual cost of this program would be $240,000 (excluding employee and other operational costs). Based on previous experience, you know that each conversion from the campaign will result in a $100 gain in revenue, and you can count on about a 5 percent success rate, generating revenue of $500,000. After subtracting the $240,000 annual cost, the total annual profit for the program would equal $260,000. But if your data quality is poor and your error rate is 50 percent (a not uncommon issue for enterprise sales and marketing departments due to duplicates, incorrect addresses, outdated lists, and so forth), the revenue would be cut in half to only $250,000, slashing the total annual profit for the program to just $10,000. If you include operational costs, you are likely losing money on the program.”
This is a great illustration of how quickly you can lose your valuation. However, you can turn that downward spiral around by focusing on quality performance marketing tactics that connect you to the RIGHT customers – the ones who are looking for what you offer, ready to buy, and can tell other prospects about what you have to further your targeting efforts.
Consistently Right Traffic
In explaining how this works, Lee Aho, Vice President of Advertising at Clickbooth, pointed to the benefits of using the right pricing Cost-Per-Action strategy. He said, “Only the most successful CPA advertisers implement an effective right-pricing strategy, one which requires them to not only correctly recognize actual lead value, but also price lead sources in accordance with the lifetime value of the customer. The end result of a successful right-pricing strategy is increased scale, ongoing traffic consistency, and maximum ROI.”
Without the proper understanding of who the right customer is, what they want to hear, and where they are coming from to find you, you will be still be attracting those wrong customers who are not interested, and certainly not buying what you are selling. This makes it look like you have no value, rather than illustrating your product or service is disrupting the market and exciting an audience to the point of spending money.
Right Customer Retention Also Impacts Valuation
And, if you can’t get the right customers in the first place, how are you going to build the necessary strategy to then retain those customers? Customer retention is now believed to be almost more important than customer acquisition in the long-term, especially to investors who are looking to get a significant return from their investment.
There are significant reasons why you need to split your strategy into finding the right customer and keeping them, according to an article from CMO.com that quoted a study by Bain & Company, in coordination with Earl Sasser of the Harvard Business School. In the findings, it stated that many customer relationships may seem unprofitable in the earlier years but the cost of maintaining loyal customers falls and the big returns can be generated. In fact, it was concluded “increasing customer rates by 5% increases profits by 25% to 95%.
Finding the right customers may not seem like an option for a start-up that has to prove its value in the short-term. Partner with companies like Clickbooth, which offer highly qualified leads and quality web traffic, and help you formulate a strategy that involves knowing your customer and their needs and desires. Then, you can use available data to fine-tune the messaging and channels to reach those customers. This approach can go a long way to getting those right customers and enhancing valuation rather than ending up ruining it.