Would you trade $1 for $2.50? The answer is obvious, “Hell, yeah!” But, for those whose pulse didn’t start pumping this will get your attention. Would you trade $20 for $50? Again, the answer is, “Hell, yeah!”
So why are so few people willing to do this? Why are business owners stepping over a dollar to pick up a quarter? Let me tell you what I’m talking about.
From The Far Reaches Of The Orient
It’s from the company Oriental Trading. They sell nick-knacks and chotchkies.
They kind people give away at trade shows or in kids goodie bags that end up in the trash.
But this isn’t a column about what Oriental Trading sells and where it ends up. This is about an overlooked goldmine inside every business.
Any idea what it is? OK, I’ll tell you.
It’s your dormant customers.
Your Secret Wealth
This is a case study of what Oriental Trading did to reactivate my wife, one of their dormant customers.
In the process, they made over $2.50 for every dollar they spent. So read this carefully and take good notes. But first, let me tell you what a dormant customer is.
A dormant customer is a customer who hasn’t bought from you in a longer than “average” amount of time. The amount of time considered “average” will vary depending on the type of business you’re in.
For example, “average” for an auto dealership might be three years. For a restaurant, it might only be a month.
Most of the time “average” is an educated guess. A hunch. So, don’t get caught up trying to figure it out exactly. When you notice “regulars” not coming around as often is when you should do what Oriental Trading did.
Inviting, or in this case bribing, them to come back. Here’s why.
The cost of finding new customers is expensive. It’s even more expensive when you compare it to keeping current ones.
The Harvard Business Review published that it can be up to 25 times more expensive. Still, businesses are obsessed with, “finding more new customers.” In the process they skip over a dollar to pick up a quarter and don’t invest in what they already have.
Then there’s smart companies like Oriental Trading. They sent out the greeting cards pictured below.
Oriental Trading did this because they know that $20 is less than what it will cost them to find a new customer. They also know that the average sale per customer is more than $20.
By offering a $20 “bribe” they knew it would appeal to a majority of their customers. They knew they who would spend more than the $20 they were giving them. So, they made money every time someone cashed in their gift card.
A gift card is great way to reduce risk. Why? Because people don’t use them all, so it cost them nothing to reach those customers. But, let me tell you how it played out at home.
When my wife opened the card she immediately became giddy. She loves to shop and who can resist a 20-dollar-bill dangled in your face, no strings attached.
The no strings attached is an important component of this promotion. It got people off the fence who wouldn’t be interested in the promotion if it was, “get $20 when you spend $20.”
Because this WAS a FREE promotion it guaranteed that more people would respond. But back to what happened at home.
As I said my wife went into “shopping” mode. She’s getting ready for her sister’s baby shower.
The stuff Oriental Trading sells is exactly what she was looking for. She looked over the whole catalog and folded the pages with things she liked. I watched because I knew what was about to happen.
Gold Hiding In Plain Sight
When the dust settled, she had spent over $50, including the free $20. So, with this promotion Oriental trading turned their $20 into a $50 sale.
That’s an ROI of at least 2.5 to 1. I say “at least” because I’m using retail pricing to calculate ROI. I’m sure the free $20 in retail items my wife bought cost Oriental Trading less than $5. If that’s the case then the ROI could be 10 to 1, or higher!
But this isn’t an ROI case study.
This is a case study on the gold in them thar hills, hiding in plain sight in every business. It’s a good practice to have some sort of customer tracking system.
It will let you know who’s come in recently and who hasn’t. You can then invite those who are dormant back into your business.
It’ll be A LOT cheaper than replacing them.
You Can Do It Too!
My UPS stores run a campaign like this every year during our busy season, Christmas. It averages between $1.50 to $2 for every $1 we spend on it.
It’s a simple letter with a $10 “bribe”If you want to get a copy of it to use for your business email me at firstname.lastname@example.org and write “LETTER” in the subject line.
I’ll get a copy of it to you ASAP. I only ask that you don’t copy it exactly, borrow don’t steal.
Remember, “Life is a series of missed opportunities so go for yours.”™
Author: Victor Urbina
To read Victor’s previous columns, click HERE.