Not All Customers Are Created Equal

Hi Folks!

Before we start, a huge welcome to the few hundred new folks who joined over the last week. So grateful you joined!

I put a ton of time and energy into this weekly newsie, and it means the world if you share it with a friend or colleague.

One quick announcement:

Cody and I recently finished season 2 of our podcast “Down To Chat” with an episode that was a masterclass on landing pages. We had Nik Sharma on as a guest, and I highly recommend you check it out if you’d like to learn more about landing pages!

Last week, we spoke about how to fix customer retention and went deep on understanding the metrics and levers to pull to improve customer retention.

This week, we’ll take a step back and discuss something even more important: understanding “customer quality.”

  1. Real Talk: Not All Customers Are Created Equal

  2. Unpacking Customer Differences: Understanding What Matters

  3. Action Items: What You Can Do To Affect Change

In my opinion, one of the easiest ways to drive serious and scalable retention is by adding a mobile app to your marketing mix. It’s like a permanent landing page on your customer’s phone.

Don’t just take it from me. Check out how the Chubbies mobile app drives revenue:

  • 98.6% retention in the last 90 days

  • 189x ROAS (return on app spend)

Chubbies is an early adopter of an ecom mobile app tech — they’ve been using Tapcart to host their app since 2018. And since then, it’s clearly an awesome channel to grow a loyal community and scale retention.

With over >137k push subscribers, Chubbies uses push notification campaigns to reach their loyal customers with deals, drops, and brand news. Compared to spammy SMS and saturated email campaigns, push notifications are customers'’ engagement preferences. Sprinkle in app-exclusives into your strategy… retention is a done deal.

189x ROAS is a testament to how an app is a great move for marketers because the results are high impact and low effort on your end. With Tapcart, you can easily launch an app as an extension of your Shopify store in literally two weeks. Your app will be 100% on brand and you have the control to easily update your app design with a drag-and-drop editor or low code. It’ll be your team’s easiest to-do task for a whole new revenue stream and best way to build your community.

I keep seeing more and more brands getting a mobile shopping app beyond the fashion vertical, but also CPG, beauty, and home. Some of my favorite Tapcart apps are The Hundreds, Princess Polly, Ruggable and Truff. It just makes sense because an app makes a retention strategy stronger and customers stickier. App users have proven they’re more die-hard fans, with higher conversion rates, revenue per session, and lifetime value than mobile and desktop web. Your biggest fans will almost always download your app, and that top 10-30% of consumers is worth 6X your regular customer cohort.

Launch your own app with a killer marketing strategy AND get your first month free on me using the link here:

Real Talk: Not All Customers Are Created Equal

In the era before e-commerce SaaS solutions fixed every imaginable problem, data used to be vague.

Imagine this scenario: You have a booth at the local market where you sell candles on weekends, in the pre-social media and pre-internet days.

You work hard to create excellent products and sell them every week. You know you have a great product when customers come back to repurchase.

Hearing that a new customer discovered your candles through a friend probably makes your week...

It was that simple.

With the advancements in our tools, tracking customer journeys across the internet is now possible.

So much effort is now being put into identifying what constitutes a "good customer."

Customer journey data has evolved massively over the last decade. Years ago, we assumed folks that repurchased liked the product, and folks that didn’t repurchase didn’t.

Now, it’s all about the cohort they are in, the traffic source they came in on, the exact ad they learned about us from, the product they started their journey on, the time between orders one and two, and so much more.

Based on understanding your customer cohorts, can you do more to affect LTV change early on?

Broadly, segmentation helps to identify and group customers based on shared characteristics, allowing for more targeted and personalized marketing efforts.

Factors such as demographics, psychographics, buying behavior, and engagement level can all be used to segment customers.

By understanding what matters to different customer segments, businesses can tailor their marketing, product development, and customer service efforts better to meet the needs and preferences of each group.

But what is written in the sand, and what can be dramatically shifted?

Unpacking Customer Differences: Understanding What Matters

Customer journeys are intricate and can span a long period of time.

What differentiating factors can massively change a customer’s trajectory within their journey with your brand?

I’ll go through a few big ones and leave you to continue brainstorming.

A. Traffic source:

Across every business I’ve ever looked at, customers that came in through an ad had a lower lifetime value with the brand than those that came organically.

Traffic source matters because customers from different channels may have varying interest levels or intent.

For example, a customer who finds a business through a search engine may be actively searching for a specific product or service.

In contrast, a customer who discovers a business through social media may be more casually browsing.

Hypothesis: When someone “finds you” on google, even if it’s an ad under a broad search term, they feel like they are making a conscious decision rather than being “duped” by an Instagram swipe-up ad.

That doesn’t mean you should not be running ads; it just means you should understand that those customers might be different.

B. Products in a first purchase:

This one is highly relevant in our world, especially with brands with multiple SKUs.

I’ve seen cohorts of customers that come in on some products have nearly double the LTV of those that came in on other products, all in the same period and with similar traffic sources.

Sometimes it has to do with how much education the product requires, but it can also be because some products are just loved by more people.

It can be more than that, so constantly analyze and hypothesize, then use customer conversations + data to prove that out.

An interesting example to help you start thinking: At OLIPOP, we saw customers that purchased Vintage Cola first in their first order had significantly higher LTV than those that purchased Strawberry Vanilla, even though they were both top SKUs.

Hypothesis: Vintage Cola drinkers are old-school soda drinkers. Soda-swappers, if you will.

They swapped their Coke for VC and are drinking 1-2 a day. Strawberry Vanilla drinkers are looking for a nightcap, a special treat. They probably drink less of it, so lower LTV.

In this case, there might not be a ton to do to push SV drinkers to drink more, but you should consider targeting soda drinkers with VC ads, and it might be worth a higher CPA because they are potentially more valuable customers.

C: Their Current Personal Needs:

When I think about difficult retention marketing, the biggest missing link is understanding what your customer needs or the problem you are solving for them.

Some examples:

If you are selling baby clothing, is this a product for them or a gift for someone they love? (One of these buys monthly, the other buys once a year max).

If you are a brand focused on skincare for oily skin, and the customer has dry skin. You might see much lower LTV on dry-skin customers, and it isn’t fully up to you to change that without creating a new line.

If you sell weight loss supplements, some customers “succeed” faster than others.

Customer conversations and customer quizzes are more important than ever to ensure you deeply understand who you are talking to.

D: The Hardest One To Change: Their Net Worth

This is more true than most of us like to think:

(HHI = Household income)

Action Items: What You Can Do To Affect Change

The more I understand customer retention, the more I learn about how much time between orders matters both to detect a great customer and can also be leveraged to turn someone into a great one.

There are so many minute details about every singular customer, and it often becomes hard to categorize an entire customer cohort by anything other than their shopping characteristics.

Enter RFM: (I pulled the below details and graphics from our friends at Peel!)

If you do almost nothing on the retention side or are starting from zero, focus on this.

RFM stands for Recency, Frequency, and Monetary value, each an important indicator of customer behavior.

Recency - How recently did the customer make a purchase?

If the customer has purchased more recently, they are likely to be more responsive to outreach and promotions.

Frequency - How often does the customer place an order?

If a customer purchases more frequently, then they are more engaged and satisfied.

Monetary Value - How much do your customers spend per order?

Every purchase is valuable, but combining this factor with how recently or frequently a customer purchases could indicate if they are a brand loyalist.

RFM can help you answer these questions:

  1. Who can you upsell higher-value products to?

  2. Who can you send personalized messages to keep them from churning?

  3. Who is most likely to engage with your brand?

  4. Who can you offer limited-time offers to and try to reactivate?

RFM analysis groups all your customers into ten groups based on their scores. You can also make an Audience for each group to take further action or dig deeper into the analysis.

You can give all your customers an RFM segment using their score of 1 to 5 (integer values) on three metrics:

  • Recency (number of days)

  • Frequency (number of orders)

  • Monetary (LTR - Lifetime Revenue)

A score of 5 means a customer is in the top 20% group, and a score of 1 indicates a customer is in the bottom 20% group.

Using the RFM framework, Peel further segments customers into different groups based on their behavior, allowing businesses to tailor their marketing and retention efforts to each group's needs.

For example, customers with high scores for all three factors (recent, frequent, and high monetary value) will likely be the most valuable customers.

They should be treated accordingly with special offers, personalized communication, and other retention efforts to keep them engaged with the brand.

Focusing on talking to your customers differently based on where they are in their journey with a focus on lifting them through the RFM ranks is a great place to start.

Any topics you'd like to see me cover in the future?

Just shoot me a DM or an email!

See you next week,

Eli 💛

*Disclosure: I might get an affiliate commission if you click on some of the links in this newsletter and choose them for your business. That being said, these are tools I personally use and love, and I would not recommend them if I did not think you would love them too!