Fracking Your Customer Base Mike | August 26th, 2013

I have been reading lately about the energy industry, specifically the efforts over the last 10 years or so to develop the technique know as Hydraulic fracking or, simply, “fracking.” Fracking has allowed the oil and gas companies to extract valuable oil and gas from fields that had been considered tapped out by injecting a mixture of water, sand, and chemicals into the earth at a high pressure to induce the rock to fracture and allow liquids such as oil to migrate more easily to the existing (or newly drilled) wellheads. The technique, although controversial in some quarters, has given the energy industry a huge boost of productivity, revenue, and profit as they learn to make the most of their existing assets and extract the most from their existing fields.

Fracking works nicely as a metaphor for any business, large or small, that wants to leverage their existing customer base and extract the maximum revenue, traffic, or profitability from their own existing assets. Fracking is to energy extraction what data mining can be to your customer’s lifetime value to your business. By using “data-fracking” to drill down into your existing customer base a business can learn more about customer behavior, generate added sales, save marketing dollars, and deliver meaningful value to valued customers.

With reasonably simple steps a business can (and should) collect and maintain some basic data on every customer and every transaction. The first important data-set to extract is the acquisition cost. Every customer comes to you via some form of marketing, whether that is paid advertising or social media marketing or word-of-mouth. And there is an expense associated with each and every marketing tactic performed. For instance if your company spent $10,000 on print advertising and acquired 100 new customers as a result, the acquisition cost for each new customer (CPA) would be $100.

The next, and equally important, bit of data to extract is on the revenue each customer brought in with their transaction  and how much profit was derived. The importance of understanding basics such as average revenue per customer, average revenue per transaction, and average earnings per transaction can not be overstated

Finally data on repeat customer transactions will allow you to gain an understanding of CLV or “Customer Lifetime Value” which is the average profit each customer will bring to your business over the life of the relationship. To truly understand CLV, you must also collect and aggregate data on how much was spent to encourage the customer to transact again (and again and again). This is the key, because it is always less expensive to market to an existing customer than it is to gain a new one.

Once you have extracted this most basic of data, the concept of data-fracking comes into play. This is the art of collecting more detailed information – from the demographic to the geographic and all data in between. Aggregating and slicing this data allows you, for example, to understand which customers are most likely to generate repeat transactions. For instance, it may be that customers from certain regions or zip codes are more likely to have higher shopping cart values, or that customers of a certain age are inclined to respond to coupon offers, or that customers in your home city respond better to social media outreach than those at a greater distance. Customer satisfaction rates are another important data point; happy customers are those most likely to come back repeatedly and using data fracking to identify this set of your customers will allow you to market to them most effectively.

Leverage your customer data, inject some marketing steam, and create those micro-fissures that allow you maximum leverage to take a trickle of repeat business and turn it into a gusher!

Photo: The Lucas oil gusher at Spindletop, Texas Wikipedia

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