EPISODE 11: Purchase Frequency

21 September 2020

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Purchase Frequency

Episode 11.

When it comes to increasing your sales, finding a customer is only part of it. Getting that customer to buy more frequently is what shifts a business from constantly hunting new customers, to having the time to properly serve their most valuable customers.

In this episode we're covering your Purchase Frequency and the Time Between Purchase. Take the data from your Xero account, and use it to measure how successful your marketing campaigns are.

Episode Transcript 

Riann Umaga-Marshall: Hi, I'm Riann Umaga-Marshall. 

Hamish Mexted: And I'm Hamish Mexted. 

Riann Umaga-Marshall: And welcome to Business Made Easy. In today's podcast we're covering the secondary metrics, purchase frequency, and time between purchases. 

Hamish Mexted: To recap quickly, in episode 10 we went through the repeat purchase rate. The repeat purchase rate is looking at how quickly your most valuable customers come back to see you, how often they come back to your store or your business. Because lifting all of these metrics, the repeat purchase rate, the purchase frequency and the time between purchases, is the easiest way to see the effect of any marketing campaign you roll out, any sales tactic roll out, or any change that you make to your pricing and how you run your business on a day to day level. 

Before we get into the purchase frequency and the time between purchases, if you haven't listened to episode 10 already, I would really recommend that you do. But we'd also recommend that you jump onto our website, convexaccounting.co.nz/podcasts, select episode 11 and download the worksheet that goes along with this episode. The worksheet's going to help you work out exactly your numbers for your particular business. And that's going to give you better data on how you're moving forward. 

Riann Umaga-Marshall: First up, we're going to look at purchase frequency. Here we're looking at the average number of times a customer makes a purchase in each period. By knowing how frequently your customers buy, you can see the short-term impact from your marketing. For example, if the purchase frequency doesn't change after implementing a new loyalty scheme, then you know the loyalty scheme isn't quite working. 

Hamish Mexted: So, with your purchase frequency we're looking at the number of days between purchase. This gives you a really quick gauge on how often people are coming back. We're not looking at over months, or years, or even quarters, we're looking at a really quick and discrete period of time. So, it works better for businesses where customers do come back more often. So, they might be a retailers, or they might be an online retailer, or a coffee shop. But it's the places that people are going back to more frequently and it's the data from these guys which becomes really important. 

So, if you're in retail, you could look at the number of transactions have gone through your FPOS terminal, and your FPOS terminal should be able to give you that data. And you then can divide that by the number of customers that you've had through your store. Now it can be a little difficult to see the number of unique customers you've had into a particular store if you're not running a loyalty scheme, or you're not an online retailer. But some point of sales systems and some loyalty schemes will give you that data. 

So, it's just about working out where you can get the information you need from within your business. If you need help though getting access to any of this data, please feel free to reach out to us and we can point you in the right direction for you and your particular business. Next up, we've got the time between purchases. 

Riann Umaga-Marshall: This metric tells you how long it is before the typical customer makes their next purchase. So, to measure this, you'd divide the period you're looking by the purchase frequency you calculated earlier. This gives you the number of days that go by between a customer’s purchases. 

Hamish Mexted: So, in the purchase frequency, we might know that someone comes to visit our store three times a month. That's what your purchase frequency is measuring. As opposed to the time between purchases, we're now looking at the gap between each visit into your store. So, they're really similar things but they're a different way of thinking about the same information. 

Riann Umaga-Marshall: You're then able to tailor your marketing campaign to the average time that goes by between customer purchases. For example, if customers typically purchase every six weeks, you could run a promotion every four weeks to get customers back into your store sooner. If you're a service business, you could provide a discount on a second service if taken in a short period after their initial purchase. 

Hamish Mexted: Or if you're an online retailer you could look to have different promotions depending on where in a buying sequence someone is. So, if you know that on average people come back to you after six weeks, how about you reach out to them after three weeks and start to encourage them to engage with your business in a different fashion. 

So, when you've got the data it becomes really easy to tailor your offering to manipulate or to change the customer behaviour, to get them back into your store more frequently. That's all we've got time for today but to quickly recap, the repeat purchase rate looks at the percentage of customers who come back to you more than once in a particular period. 

So, to calculate it you take the total number of people who have bought from you more than once and divide by that the total customers you've had in a period. Secondly, we got your purchase frequency. Which is the average number of times a customer will buy from you in a given period, and you calculate that by having your total number of sales and dividing that by the unique number of customers in your store or business. 

Finally, we've got the time between purchase which tells us how long a customer generally goes between making purchases from you. So, to calculate that you would divide the number of days by the purchase frequency that we calculated in the previous step. 

Riann Umaga-Marshall: Now with this data, you can clearly see the impact on your bottom line from the initiatives you roll out. Some of the most successful new initiatives we've seen include a law firm educating their customers during their house buying process, a retail firm with a game to get customers back in the store, and a mechanic creating a loyalty program. 

 

Some others that we've seen before is when you buy online and the give you a 20% discount if you buy again within the next month. For more information check out our podcasts which cover this topic and download the worksheet to help you calculate your own numbers. 

Hamish Mexted: And calculating your own numbers really is the most important part, because it's those which help you benchmark where you are today, so you can see the impact of any changes you make in your business, to really track and improve your performance over time. So, jump on our website, convexaccounting.co.nz/podcasts. Jump onto episode 11 and download the worksheet. We cannot stress highly enough how important that is. 

Thank you for joining us today and come back next time when we're going to be covering family trusts and what you need from a legal perspective to make sure that the value and the wealth that you create from your business is protected, should the need ever arise. 

 

RUM

for more help feel free to reach out. Get in touch with Riann Umaga-Marshall

HM v2

for more help feel free to reach out. Get in touch with Hamish Mexted