Back to the on-screen lesson ·
What the first sale earns against what a year of the same customer earns, the return share it all rests on, and the ways of getting the next sale ranked by what each costs.
Paper packet. Every task here also exists on screen, where it is checked automatically; answers written on paper are not assessed by Nydus. When you are back at a device, enter your answers there.
You will work out what a customer earns on the first sale and over a year, count the share of new customers who return, and value a whole group of new customers — returners and one-off buyers together. You will also find how many purchases pay back the cost of winning a customer, and rank the ways to the next sale by what each costs.
You can work out what a sale contributes, and what a way of reaching customers costs per customer won. This lesson puts the second against the first over a year rather than a single sale, and shows why the customers a business already has — and the people they tell — are usually its cheapest source of the next sale.
| Term | What it means |
|---|---|
| Acquisition cost | What it takes to win a new customer. |
| Repeat cost | What it takes to bring an existing customer back: a message, a card, a reminder. |
| Return share | The new customers who bought again, divided by all new customers. |
| Referral | A customer who arrives because another customer told them to. |
| Customer value | What one customer contributes over a stated period; the period must be stated. |
| Payback | The purchases or months it takes a customer to cover what they cost to win. |
Winning a customer costs money. Bringing the same one back costs much less: you have their number and they already know what you do.
$$\text{first sale} = \text{contribution} - \text{cost of winning them}$$
$$\text{a year of them} = (\text{contribution} \times \text{purchases}) - \text{cost of keeping them}$$
So a first sale can lose money and the customer still be the best thing that month. The second line holds only if they come back — a fact you have written down or you have not.
A referral is the cheapest sale there is, it costs the asking, and it is the one most often not asked for.
This is how to work the number out and read it, not a recommendation about what to charge. What any particular business should do depends on a market nobody here can see, and on rules that differ from place to place.
Another way: steps
For one customer of your own:
Another way: table
One cleaning customer, in dollars.
| First clean | A year of her | |
|---|---|---|
| Contribution | 30 | 360 |
| Winning her | 25 | 25 |
| Keeping her | 0 | 1 |
| Earned | 5 | 334 |
Same customer, same work, two periods. The left column is not wrong; it answers a question nobody should ask.
Find the return share from the records. List last year's new customers and mark those who bought again. Divide. This is the single most important number in the lesson, and most owners have never counted it.
Find what a returner buys. Count the purchases the returners made in the year, and the contribution of each. The average purchases per returner times the contribution is what a kept customer is worth in a year.
Work out a group of new customers, not one. A realistic year for twenty new customers is twenty first purchases, plus the repeat purchases of the share who came back, less the cost of winning all twenty — returners and one-off buyers alike. That figure tells an owner whether a channel is earning, because it includes the customers who did not come back.
Find the payback. The cost of winning a customer divided by what each purchase contributes is the number of purchases before they have paid for themselves. Set that beside how many purchases returners actually make.
Check the result two ways. The cost of winning should appear once per new customer and never again in the year; a year that comes out negative for a customer who returned usually has it in twice. And the group calculation should agree with the per-customer one when every customer is assumed to return: if not, a purchase has been counted twice or missed.
Rank the ways to the next sale by what it costs. The order is about who you are talking to, not about the medium.
| Way in | What the next sale costs |
|---|---|
| A referral you asked for | the asking |
| A message to past buyers | a little time |
| Leaflets nearby | printing and delivery |
| A paid listing | a monthly fee |
| A stall at a fair | the fee, the stock, the weekend |
The bottom three pay to reach strangers, including every stranger who was never going to buy. All of it rests on one number: the share of new customers who buy again. Without it, customers come back is a hope quoted later as a measurement.
Because so much rests on the return share, small improvements to it are often worth more than a new channel. Moving it from 25 to 35 percent means four more returners in every forty new customers, each worth a year of purchases, for no extra cost of winning.
The ways to raise it are mostly the offer and delivery lessons applied to people who have already bought once. Keep a list of customers and how to reach them, with their permission. Give the next purchase a reason and a date: a refill, a seasonal line, a service due in six months, a reminder before the busy season. Make coming back easy: the same slot every week, an order form that remembers last time, a card with the number on it. Fix what made people leave: the lessons on process and quality exist because a returning customer is buying the same result as last time.
Referrals follow the same logic. Ask a customer who is clearly pleased — just after the work is done, not weeks later — whether they know anyone who might want the same, and make it easy for them to pass it on: a card, a message they can forward. Some owners offer a small thank-you to both people; whether that is worth it is a question for the arithmetic, since the thank-you is a cost of winning the new customer like any other.
Not every returning customer earns the business money, and the arithmetic that shows a good regular's value also shows a poor one's. A customer who always wants the job done at the last minute, disputes every invoice, pays two months late and takes twice the usual time contributes much less than the average, and sometimes less than nothing once the owner's hours are counted.
The same four figures settle it. What does a purchase from this customer contribute, once the extra time is costed at the owner's rate? How many times do they buy? What does keeping them cost — including the chasing and the rearranged schedule? And what could the same hours earn with somebody else? A regular who contributes 12 a visit but takes an extra hour worth 30 is losing the business 18 every time they come back.
The usual answer is not to drop such customers abruptly but to change the terms: a price that reflects the extra work, payment on the day, a booking made a week ahead. Some will accept and become ordinary customers; some will leave, and their slot will go to somebody who contributes more. Either way the decision is made on the figures rather than on how the owner feels about the customer, which is exactly the discipline this whole course has been building toward.
It helps to look at the list of regulars once a year with this in mind. Sort them by what each contributed over the year after their extra hours are costed, and read the bottom of the list as carefully as the top. The top shows who to thank and ask for referrals; the bottom shows whose terms need a conversation.
A small coffee roaster sells bags of beans at markets for 14 dollars, with a contribution of about 6 a bag. A market stall costs 90 a day and wins, on average, 15 new customers who buy one bag: 6 dollars a customer to win, exactly the contribution of the first bag. On first sales alone, markets break even and no more.
Her records tell the rest. About a third of market customers buy again, usually online, averaging five more bags in the year: each returner contributes 30 more. For 15 new customers that is 15 × 6 + 5 × 30 − 90 = 150 dollars from each market day's customers over the year. She then starts offering a monthly subscription at the stall, with the first bag at a small discount. Subscribers take twelve bags a year and the monthly email costs almost nothing; about one market customer in eight signs up.
With two subscribers from each market day, each worth 12 × 6 = 72 a year, the same 90-dollar stall now brings in roughly 150 + 144 = 294 over a year. The market stall did not change; what changed was how many of the people it reached she kept, and she knew that only because she counted them.
Businesses that sell by subscription — software, boxes, memberships — watch their retention rate and its opposite, churn, as closely as their sales, because a small change in how many customers stay changes the value of every customer they win. It is this lesson's return share, measured every month.
Reading a first-sale loss as a bad customer. It is the cost of them arriving, paid once. Judge over a period, and say which.
Assuming the return. Uncounted, you have the shape of the figure and not the figure.
Valuing a channel on its returners only. The customers who never came back also cost something to win.
Spending on new customers and ignoring the old. The people who have already paid you are the cheapest list you will ever have.
Treating a referral as luck. It happens far more often when it is asked for, so not asking is a decision, however quietly made.
Counting the cost of winning them twice. It comes off the first sale and not again in the year; a negative year usually has it in twice.
Find what the first sale earns.
$12 - 20 = -8$
Winning a customer costs 20; a mug contributes 12.
Find what a year of a returning customer contributes.
$4 \times 12 = 48$
Four purchases in the year.
Take off the cost of keeping in touch.
$48 - 2 = 46$
Keeping her costs 2 over the year.
Set the two side by side.
$-8 \text{ first sale}; \ 46 \text{ the year}$
Same customer, two periods.
Name the figure the year rests on.
$\text{how many of last year's new customers bought again}$
The arithmetic points at a record, not an opinion.
Count the returners from the records.
$8 \text{ of } 20$
The return share is 40 percent.
Add the first purchases.
$20 \times 12 = 240$
Every new customer bought once.
Add the repeat purchases: 3 more each for the returners.
$8 \times 3 \times 12 = 288$
Only the returners.
Take off the cost of winning all 20.
$240 + 288 - 20 \times 20 = 128$
The group earned 128 in its first year.
Find the effect of a 60 percent return share instead.
$240 + 12 \times 3 \times 12 - 400 = 272$
Four more returners more than double the year.
Name where to spend effort.
$\text{the return share, before a new channel}$
Raising returns costs little and multiplies every new customer.
Find what a listing customer cost.
$150 \div 6 = 25$
The paid listing brought 6 customers in three months.
Find what the first clean earns.
$30 - 25 = 5$
Positive, and almost nothing.
Find a year of a customer who stays: twelve cleans.
$12 \times 30 - 1 = 359$
Keeping in touch costs 1 over the year.
Find the listing customer's payback in cleans.
$25 \div 30 < 1$
Paid back within the first clean.
Find what a referred customer costs to win.
$\text{the asking} \approx 0$
The same 359 without the 25.
Find the value of asking every regular for one name a year.
$6 \text{ regulars} \times 1 \text{ referral} \times 359 \approx 2154$
If each referral stays as long as the regulars do.
Rank the ways in.
$\text{referral} < \text{listing}$
Rank by what the next customer costs, then check the return share holds.
Find what the first repair earns.
$32 - 8 = 24$
Contribution less the cost of winning them.
They come back three times a year in all. Find what the year contributes.
$3 \times 32 = 96$
Purchases times contribution.
Take off a dollar of keeping in touch.
Four things an owner might know about a customer. Match each one to the figure it changes.
| How many times a kept customer buys in a year | What it cost to win that customer | What the next customer will cost to win | The share of new customers who ever come back | |
|---|---|---|---|---|
| She has bought four times this year | ||||
| He found you through a paid listing | ||||
| She told two neighbors | ||||
| He bought once and has not been back |
Complete the worked solution: winning a new customer costs $15$ dollars; one purchase contributes $14$; a customer who stays buys $3$ times a year, and keeping in touch costs $5$ over the year. Compare the first sale with the year.
Find what the first sale earns.
$14 - 15 =$ f
The cost of winning lands on the first sale.
Find what a year contributes.
$14 \times 3 =$ y
One purchase times the purchases.
Take off the cost of keeping them.
$(\text{year}) - 5 =$ n
Keeping comes off once.
Find the year after the cost of winning.
$(\text{kept}) - 15 = 22$
The customer's whole first year, winning included.
Say which figure a decision uses.
$\text{the year, if they come back}$
The first sale answers a question nobody should ask.
At Monica's Market Stall a bag of fruit contributes $5$ dollars, and a customer who stays buys $24$ of them in a year. Keeping in touch with that customer over the year — the message, the card, the reminder — costs $0.25$. How many dollars does the year earn?
Answer:
Five ways of getting the next sale. Put them in order of what that sale costs to get, cheapest first.
Number the steps in order (write the number in the box):
Maya went through last year's records: of 40 new customers, $10$ bought from her again within the year. What share of new customers came back, in percent?
Answer:
Bright Home Cleaning won 20 new customers last year, at $10$ dollars each to win. Every one of them had a first clean contributing $12$ dollars. $9$ of them came back and booked $4$ more cleans each, at the same contribution. What did the 20 new customers earn in the year, once the cost of winning them is taken off?
Answer:
A bicycle courier spends $84$ dollars on the offer and the listing that bring in one new client. Each delivery for that client contributes $21$ dollars. After how many deliveries has the client paid back what it cost to win them?
| Amount | |
|---|---|
| Result of the first delivery alone, dollars | |
| Deliveries before the client has paid back their cost |
Lesson test: one question per skill, one attempt each, no hints. Your answers are checked when you submit.
Neighborhood Kitchen spends $4$ dollars winning one new customer. A lunch box contributes $3$ dollars, a customer who stays buys $40$ times in a year, and keeping in touch with them over that year costs $0.5$. Fill in what the first sale earns and what the year earns.
| Amount | |
|---|---|
| What it costs to win a new customer, dollars | 4 |
| What one lunch box contributes, dollars | 3 |
| What the first sale alone earns, dollars | |
| Purchases a returning customer makes in a year | 40 |
| What a year of that customer contributes, dollars | |
| What bringing them back costs, dollars | 0.5 |
| What keeping them earns, dollars |
You can value a customer over a stated period rather than over one sale, count the return share, and rank ways of getting the next sale by what it costs. Tell someone why a first sale that loses money can still be the best thing that happened that month, and what would have to be true for that to be wrong. Next: making the work come out the same every time, which is what a returning customer is actually buying.
15. Your turn: a repair customer won for 8 dollars, contributing 32 a repair, step 3
$96 - 1 = 95$
Against 24 for the first repair alone.