Why We Can’t Take On A Client Who Won’t Do A Newsletter For 12 Months

Some people can be impatient! I know because I’m one of them.

The other week I was conducting an existing customer opportunity audit with a business and we discovered that in their specific situation, there was a really good business case for doing a newsletter. I was confident that the newsletter would deliver the conservative results that we discussed. They were completely sold on the idea and ready to get started, but then they said “We’ll try it for 3 months, and only if we see a return during that time, we’ll continue.”. – I had to stop them right there and say “If you can’t commit for at least 12 months, we can’t take you on as a client”

And there is a mathematical reason why we wont! So I thought I’d show you the ‘maths’ behind how a newsletter makes you more money. – It’s not like other forms of advertising where you get a new client with whom you can immediately and easily track the return.

We’ll use a hypothetical business… lets pretend it is a car mechanic, and they have 300 current clients.

This particular business has an average sale of $300, and on average a client gets their car detailed once every 9 months, and currently clients stay loyal for about 3 years. And on average about 1 in 4 clients will make a referral over their lifetime.
By implementing a newsletter, there are some key factors we are likely to change:

1.) Increase the transaction size – by educating customers and building trust you can usually up-sell customers, and cross-sell additional products and services to your clients which increases the transaction size. Let’s say this happens and the average sale increased from $300 to $330. a mere 10%

2.) Increase the frequency of how often they purchase – by encouraging and educating customers about the importance of servicing your car every 6 months, they can easily increase the frequency, not everyone complies, but lets say it moves from every 9 months to every 7 months (or said another way, from 1.33 times per year to 1.71 times per year)

3.) Increase how many years they stay loyal for. – By staying in touch every month, nobody will ‘forget’ you, they will stay connected with you and the likelihood of leaving will decrease a lot. For this purpose lets say we manage to increase the time they stay loyal from 3 years to 4 years.

4.) Increase the referrals you get. – By always being in front of customers, you will be top of mind, the perfect place to be to garner referrals. By implementing a referral programs alongside your newsletter it will increase it even more. In this instance we change it from 1 in 4 clients to 1 in 3 clients referring. (or said another way, from 0.25 referrals per client to 0.33 referrals per client.)

All these numbers don’t really mean a lot on their own, but lets crunch some numbers.

Currently with no newsletter, here is the current “lifetime value” of their current customer base (including the referrals those customers bring in):

300 x $300 x 1.33 x 3 x 1.25 = $448,875

If we achieve those projected changes, look what happens:

300 x $330 x 1.71 x 4 x 1.33 = $900,622

A 200% increase in what those customers are worth to your business! While this looks impressive to do as an exercise, and the numbers are a good estimate, Their is a gradual increase to those changes, and the ‘increase in loyalty doesn’t really kick in until a few years time! I’ve demonstrated below an example of the cost and return involved in this particular case. You’ll see why we don’t think that judging the success of the newsletter after 3 months is a wise decision.

* This figure is unchanged because by year 4, the existing customers have already left.