Just The Facts : Education Corner : Loyalty, Customer Retention, Customer Acquisition 101

ROI (Return On Investment) in simple terms states, based what I got in return for my investment (Regardless of Financial or Sweat Equity), was it worth it.

• ROI < 1 : A Loss
• ROI = 1 : Break Even
• ROI > 1 : A Gain

Example:

Lets take a stock market Investment. I put in (Invested) $2.00, then benefits or what I received was $6.00. The ROI = 3. However a number without units is meaningless, so we want it in percentage and we multiple (ROI)3 * 100% = 300%, which is a gain.

Direct Competitors cannot calculate ROI, mainly because they don't collect enough data. Because they don't collect enough data any ROI they show you, you should be skeptical of.

Direct competitors showing ROI (Return On Investment) are showing a manipulated value, that is not your ROI. They make assumptions and use averages that cannot accurately represent a company.

Example

Let's use these averages {2,3,4} = 3, {5,6,7} = 6, {1 ... 30} = 15.5. Now if we just say we are going to use average, the overall average is ({2,6,15} = 24)/3 = 8.
In a worst case scenario let's say for an arbitrary representation of your company ({2,5,1} = 8) / 3 = 2.666.

The numbers above produce a difference by 67%. So when companies use statistical data, they can actually be really wrong about your business. This is why, not every business runs the same. Yes, the same principals apply in running a business, but there are so many different variables for a business, personally using averages is wreckless and dangerous and we are suprised that our competitors do so.

Calculating a True ROI needs answers to many variables

• Business Location
• Business Type
• Profit Margins
• Number of Sales
• Price Per Sale
• etc.

Other Factors To Think About!

• When Calculating ROI do you use the loss of product Which might have been only $2.00 or Do you use the Loss of Revenue Which that product might sell at $12.00 with a $10.00 profit margin
• Are going to factor in the cost of energy? Standalone tablets use a lot of more electricity than a barcode reader

Yes & No! Unfortunately, NeXt cannot directly calculate your ROI. Because no-one other than you can calculate the Benefit of the software. However, what we do know is mathematics. Here is what we can tell you. Many of our competitors are more expensive than NeXt. Specifically using one of our competitors who roughly charges $300.00 per month ($3600.00 / year). Let's compare NeXt to one of our competitors to show how NeXt has a better ROI.

Let's reuse the equation above!

• Software Works
• Customers Are Happy
• You are bringing in more customers
• Making More Money
• etc...

Given the equation above there are only 2 numbers, we have the top number and it's static. There is only 1 other thing that changes in the equation above. The Investment. Remember our competitor charges nearly $3600 / year, NeXt charges roughly $900 / year

So what does this table say?

• First, it says for this condition a business using our competitor is not gaining enough from the software to offset the cost of the product. Infact the business is taking a 45% loss.
• Finally the table also says, NeXt for this customer given the same conditions is actually seeing a good benefit of 222%, which means there is significant gains in profits.

How does that work? Well assuming that NeXt can do what our competitors can do, then lowering the price you pay for that functionality is very important.

Often times lack of customers is not due to the loyalty system. It typically stems from having bad rewards for the money spent.

Example:

If you setup your loyalty system so that every $100.00 spent, a customers earns a free soft drink at a value of $2.50, they most likely won't come back. Now if you made it, so that a customer can get a free Appetizer up to $12.00 for every $100.00 spent, that has value. That is worth it and customers will come in and use your services more.

From what has been seen with restaurants and coffee shops a typical star/point is worth $2-$3. A Customer spending $9.00 should probably get 3 stars/points.

Reward items should be low cost and low - medium profits margins. However, if you have setup your system where a customer will be spending $100.00 per reward item, your reward item should still be lower cost but you might have to get into higher profit margin items. From experience, reward offerings should be setup for every $20.00 spent, the minimum of $1.50 should be saved on the bill. This ratio is 7.5%. This ratio or greater has seen great success at many restaurants & retailers.

Examples:

• Schlotzsky's® : Spend $7.00 to get a point. Come in 7 times and get a free sandwhich up to $7.00 (as of 01/01/2019)
• Old Chicago® : 1 point per dollar, every $75.00 gets you $5.00 to use at their store
• Starbucks® : Earn 2 Stars per Dollar Spent. Best value is their 150 stars for any handcrafted drink. Therefore spending $75.00, gets you a drink. Average drink price is $5.50., but any custom drink counts (07/01/2019)
• Famous Footwear® : Earn 1 Point For Every $1.00, $5.00 Cash for Every $100.00. This is a 5% return, while this is good, we here at NeXt believe it could be bit better.
• Dick's Sporting Goods® : Earn 1 point for Every $1.00 on qualified purchases. 300 Points ($300) earns a $10 Reward. This is a 3.33% reward value. Here at NeXt we believe 3.33% is better than 0, but it's not as good as it could be.
• Nordstrom Rack® : Earn 1 point for every $1.00. 500 points ($500) earns you $5.00. Not great value considering you are only getting a 1% return on what you spend.

The above exampes, Schlotzsky's has the best value. It's minimum value to the customer is $7.00 per $49.00 minimum spent. Add a drink or a bag of chips each time, now you are $11.00 and that is $77.00. That is a 10% Savings. Both Old Chicago and Starbucks has roughly the same value of 6.66%, which all of these locations sees lots of repeat business.

Gift Cards Issued through the NeXt platform have no additional costs, hidden costs, etc. By having customers using gift cards each time a debit takes place you are not paying credit card processing fees. These fees are only paid once to load the gift card, but afterwards each debit is free.

Gift Cards add value because come Christmas time, Birthdays, Anniversaries, etc. someong giving a gift card forces the recipient to return to your location and spend money. Unlike gift cards a cash gift from one person to another, then that person goes where ever they want.

Under federal law, a gift card cannot expire in less than five years after the date of purchase. But if it’s not used within 12 months, fees for inactivity, dormancy or service can be charged to the card each month, diminishing its value. Those fees must be disclosed to the user in advance, and no more than one fee can be charged per month.

While fees are great, fees also hurt the value of your relationship with your customers. Customers are tired of being bombarded by fees. It doesn't cost you anything to not charge them fees, but it could build better relationships with your customers. Remember, it's more expensive to get a new customer than it is to retain a customer.

NeXt is different than many other companies because we have thought about the process much more than they have. What makes our gift cards different?

• We (NeXt) do not charge anything for gift card processing
• We are environmentally friendly because we use transferable electronic gift cards rather than plastic gift cards
• We are currently working on our system so that you can design gift cards that will be purchased.
• NeXt customers can't lose their gift cards. Some companies appreciate customers who lose their gift cards, the problem is when a customer loses a gift card it hurts the business more than the money made from it. When a customer loses a gift card these are factors to think about:
  
  • Customers will get mad and you can potentially lose them
  • By not being able to help them, you may lose their repeat business
  • The word of mouth when they talk about your business
  Simply, all the above items can be resolved by providing customer service. Customer service that people want from a business. Good customer service, good product, good pricing, are 3 major components to having repeat business.
• Gift cards will help you compete against the large national stores
• Gift cards will help start and build new relationships
• Also by moving towards a modern phone application approach we are forward thinking in how gift cards should be done.