Lost Customer Research: 5 Facts to Consider Before Launching Initiative
July 10, 2012
Last week, I wrote a blog post on what lost customer research is, why it is a useful market research tool, and when companies should consider launching this type of initiative. This week, I will share five facts your company should consider when determining whether or not a lost customer research project is a worthwhile investment of your resources.
1) Winning back lost customers is much easier and more cost effective than selling to brand new customers.
Research has shown that a firm has a 20% to 40% chance of successfully selling to a lost customer, and only a 5% to 20% chance of successfully closing the sale on a brand new customer.
2) Selling to lost customers is often much less resource intensive.
This is because the lost customer already knows about your company’s products and services and how they work, so the sales process is generally very quick. The biggest cost is generally discounts offered to incentivize a lost customer to return to using your service or product.
3) Lost customers have a very predictable value.
Their past purchasing behavior and customer support costs should be a good predictor of their annual customer value. The key is to figure out how to estimate the probable second life of this customer. The best estimate for a first time project to be conservative is somewhere between a one-time contract life value in a non-SaaS company and the average customer lifespan.
4) The acquisition costs of new customers are also much higher than that of lost customers.
A Sales & Marketing Magazine article reported that business-to-business sales to new customers cost 133% more than sales to lost customers.
5) Lost customer research projects can be as labor intensive as you choose.
The least labor intensive approach is an online survey that is sent to customers after they are lost. The main resource cost for these types of initiatives is the cost of setting up an invitation to partake in the research and a lost customer survey and the time it takes to analyze the results. These types of research initiatives generally only take three hours or so to set-up and a couple of hours to compile and analyze the data on the back-end for every 15 or so customers who partake in the research.
The most labor intensive approach to these types of research initiatives is a lost customer interview project, whereby you interview each lost customer shortly after they are lost. These projects take approximately five hours to set-up as you will need to write interview guide(s) and set-up a data collection process (as I will explain how to do later in this series). You will also need about 45 minutes per a customer for scheduling and executing the interview. The data compilation and analysis is a little more time consuming because there is more depth to the data. This step usually takes approximately three hours or so per 10 customers being interviewed for 20 minutes each.
In most instances, allocating some of your resources towards a lost customer research initiative will be worthwhile on a one-time or recurring basis. The key is identifying the research initiative that makes the most sense for your company and business model at its current stage of development.