Value

Everyone wants to build a business off highly loyal customers. Where every customer is high value—low effort to manage with a constantly expanding profit profile.

Except it never works this way. And it shouldn’t. Chasing a customer file of only loyal customers would wind up capping growth and, most likely, running counter to why a brand was created in the first place.

Most brands see 20% to 40% of their customer base generating 60% to 80% of their revenue (this would say “profit,” but we all know why it doesn’t). The natural inclination, of course, is to find more of that 20-40%. Figuring out the data off of which to build a lookalike model is a hunt for gold. But fools gold.

Searching for more of your highest value customers means you’re 1) limiting the size of the business by trying to grow off a subset of consumers who buy in your category and 2) not optimizing the business to support more one-off and low-repeat customers in a profitable manner.

Perhaps, these tradeoffs are OK to some.

You could build a small, steady niche brand and ride that. Maybe it pops one day because you catch a trend.

But the lure of consumer is the possible scale. Even $50M is an insane number of, say, tortilla chips.

And why shouldn’t people be able to eat your tortilla chips—even if once or twice a year? Why should your chips only be reserved for people who want to eat them at least 12 times a year?

Unless you’re luxury, any answer outside of “I can’t afford it,” means the place to win isn’t on targeting customers with high loyalty potential. The place to win is on improving the business to support infrequent buyers. There’s a lot more value there.