The discounts you offer your customers should be seen as an investment into the future success and profitability of your business.
Ecommerce businesses who are stingy when it comes to a lucrative offer for customers who don’t yet know their biz, are simply not going to win the Facebook advertising game like their competitors who are willing to offer a more appealing discount.
The priority at the top of your marketing funnel should always be first to lower the barrier to entry; first-time customers are always the most difficult and expensive to convert. Contrary to how it may seem at face value, a higher/more appealing first-time customer discount often can increase the amount of purchases and thus the immediate profit can be higher. However, keep in mind that immediate return on ad spend (or ROAS) shouldn’t be the focus with first-time customers. This is especially true with consumable products, but is also applicable to any ecommerce niche.
Biz owners MUST understand that more important than the immediate return in your investment, is the future return; a compelling first-time customer promotion makes it significantly easier to gain a new customer who will come back to you again and spend more money -- without a bigger discount -- once they love your product and trust your brand. With desirable consumable products, the lifetime value of a customer tends to be higher and it means you’re bound to make more money off of a single new customer over time. Thus, you need to think of the larger picture and focus on the future revenue vs only the immediate revenue brought in from a new customer. In our experience, this is how you will do extremely well with an ad campaign long-term.
So, we know you’re begging the question: what percentage off is enough of a discount for a new customer? Based on our 7+ years of experience in the ecommerce niche, discounts of at least 15% off for first-time customers have the potential to go a very long way in terms of increasing the amount of new customer purchases often without diminishing the immediate return.
Again, remember that you should test VERY intriguing first-time customer offers with the expectation that the return may be lower at first but larger over time as new customers ultimately turn into repeat customers.
If you're thinking a discount will dilute your brand, think again! The introductory promotion is just that; it's a promotion ONLY available to first-time customers. After someone becomes a customer and is interested in buying again, it will not be as challenging to get them to purchase again and you won't need an intriguing promotion to get them to pull the trigger. It's hard to convince and convert someone when they haven't first-hand experienced your product in person, right? Well, once they have and IF they love it, then trust has been built and that trust makes it significantly easier and CHEAPER to get them to purchase more. One simple discount for a new customer will not tarnish or dilute the quality of your brand, especially if that discount is the only discount given ever or is rare (i.e. the only other discounts are given during holidays like Black Friday or 4th of July).
Still not convinced? Let’s look at some real life examples:
Biossance offers a great $7 sample promo (with free shipping). They hook new customers with this amazing free sample promo and many customers return to them as repeat customers, once they have learned to know and trust their business through the free sample. Similarly, Harry’s (a subscription razor blade company), has a very compelling first-time offer: a $5 trio starter kit, with free shipping. When a new customer creates an account in order to receive their starter kit, they choose at that time the recurring monthly subscription they’d like. This is another example of a super compelling offer that effectively attracts new customers who want to try your product before fully committing.
One of the biggest mistakes you can make in the ecommerce niche is having first-time customer promos that are simply underwhelming.
Who doesn’t love free things? A free first product is a surefire way to attract plenty of potential long term customers. Yes, you may end up getting several freebie seekers, BUT you’ll simultaneously end up getting enough repeat customers that the long term return ends up being entirely worth it if this approached in the right way. To give you an example, legging company Popfit offers a FREE pair of leggings for new customers who ultimately sign up for a VIP subscription account, but they only have to pay for shipping. See, they continue to offer this promotion purely because they’ve calculated it and discovered that enough new customers will end up loving their product and remaining a VIP subscriber so that they can get more products in the future. Their lifetime value of a customer (LTV) is high enough with subscribers that this promotion ends up giving them a way better return than no introductory promotion at all. While not every business can dole out free product willy nilly, if you can offer it as an introductory promotion, you may end up seeing a HUGE influx of new customers who end up loving your product and seeing exponential customer base growth within just a few short months.
Another legging company, Fabletics, offers a few alternative first-time customer promotions that help reel in newbies. I ended up seeing a legging special this summer where you can get 2 for $24 when you become a member, similar to Popfit. Normally their leggings retail for upwards of $80. I ended up LOVING the leggings and have been a member ever since. For them, it’s clear that this deeply discounted introductory offer brings in enough new customers who love their products for it to be worth it in the long run.
Layered With Lace offers a bralette for new customers at the super low price of $10, which is incredibly appealing. After a new customer purchases their first bralette at the introductory price of $10, they’re charged $18 each month thereafter and receive a new bralette style every month. That’s a HUGE discount-- 55%! So, how can a 55% discount for the first month actually end up benefiting Layered With Lace in the long run? More customers are attracted to the $10 first month promotion that Layered With Lace ends up getting more customers than they would without a lucrative promotion. In fact, they still make a profit in the first month because this promotion is so good! Furthermore, because it’s a subscription business and subscribers tend to stay for several months, their average lifetime value of a customer is on the high end. With every customer that comes in the door with that appealing introductory promotion, this business will reap the benefits for several months and end up generating more revenue without additional promotions. But what is the return when you factor in this first-time customer promotion and the lifetime value of a customer? It ends up being over 10+ ROAS for Layered With Lace. WOW!
As you can see, every business is different and their metrics will always vary for the type of promotions they offer. You may be wondering, how does this apply to you? Well, first, you should be open to offering some dramatic promotions that will end up capturing the attention of your ideal customer. That should be your first priority; work backwards from there to see what might be possible with your metrics. You’ll want to understand the lifetime value of a customer (ultimately how much money you’ll generate from a single average customer over time) and use that number to see if those dramatic promotion ideas may actually make sense. Need some help? Request a FREE FB ads review where we’ll discuss what first-time customer promotions might be the best option for your business.