The engagement threshold: transforming one-time customers into repeat business

Are you focused on new sales or bringing in loyal, repeat customers?

Whenever a business is completely dependent on new customers, it’s vulnerable. Not only are customer acquisition costs high, but new customers are just as likely to turn to any new competitor that enters the market.

The better a company is at turning one-time customers into repeat business, the more successful they will be in the long-term. Many startups already understand this, but aren’t quite sure how to make it happen.

For most businesses, there’s often a single point in the customer engagement lifecycle where there’s a higher likelihood that a one-off purchase will turn into a loyal customer. This is what I call reaching the ‘engagement threshold.’

I was first introduced to the concept of an engagement threshold from eBay years ago. The online marketplace had discovered that a first-time buyer who makes a second purchase in another category within two weeks of their initial purchase is 70-80% likely to become a repeat buyer in the future. As a result, eBay focuses considerable energy to re-activate their first-time buyers within those first two weeks.

Likewise, I once heard that new Twitter users need to follow at least 7-8 relevant people before they end up “adopting” the service. That’s why Twitter’s “Who to Follow” feature actively suggests people/accounts you might want to follow and the service is particularly eager to get new users to follow others.

Every product will have its own version of this threshold point when a one-off user becomes a loyal customer. For enterprise software, it’s the moment where the software becomes so useful that it becomes entrenched in the user’s daily workflow.

It’s crucial for startups to understand where this threshold point is for their business and then focus extensive energy and resources on crafting the right user experience at that point in time to guide users across the threshold. When done right, payback will be rapid and there’s nothing more valuable than a lifetime customer.

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  • Amit Bhaskar

    Thanks for sharing your experience Boris. Would you be able to shed more light on how to calculate the LTV of a customer when a startup is experimenting different price points and services to find out which of the offerings will actually stick, specially when it is a new technology.

    Even though the technology itself is gaining traction, the service sectors are yet not defined properly with just a few major players offering thier products/services and customers realising the potential/ease of use and starting to use it more often.

    Also, a startup sometimes has to see which offering will start bringing sales/cash in the business sooner to supoort the cashflow or should it focus on long term products/services using the VC or Angel capital. Would it be seen as a negative point if the startup has been testing a few offerings for different market sectors or should be just focussed on one product/service even though that means more time to break even.

    Cheers.

  • bwertz

    LTV can only reliably be calculated when you have some scale so wouldn’t worry about it in the beginning. The cash now vs. focus on LT is a difficult decision and it all depends on your alternative. If you have found product/.market fit for one your products, you may try to raise money for it. If you haven’t, bootstrapping / selling services is the only other option.

  • http://www.startupmanagement.org/ William Mougayar

    Yes, that’s an important trigger. The more one can correlate the cause and effect, the more insight you get. The cause is that lever.

  • Aanchal Dhir

    Hi Boris! Thank you for sharing your insight.

    In regards to the e-commerce focused companies in your portfolio, when do you feel the “engagement threshold” is met? The E-commerce industry has grown exponentially over the past couple of years, and new competitors are constantly being added on a day to day basis, which directly effects the engagement of users as they become distracted in a crowded space. Do you foresee the engagement of consumers increasing or decreasing within e-commerce as well?

    Thank you.

  • bwertz

    I think it really depends on product mix – if the company sells a product that you could potentially buy every month, you probably have turned a customer into a loyal customer the second time the buy.

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