Are old customers more important to online businesses than new ones?

For businesses, particularly online ones, there will always be a mix of new and old customers. But what does the ratio between them tell you about the health of the company?

Cloud marketing company Optimove has studied data from millions of online customers and more than 180 brands to help companies understand if their ratio of new-to-existing customers indicates a state of growth, stagnation or decline.

It finds that online retailers with a new to old customer ratio of 90:10 are unhealthy, with a five-year compound annual growth rate (CAGR) lower than two percent and customer churn rates 100 percent higher than average. These are classed as 'running in place.'

Those with a new-to-existing customer ratio between 70:30 and 40:60 are typically early stage companies (less than seven years old). These are 'rockets' and are growing very fast, with a five-year CAGR over 100 percent and churn rates 50 percent lower than the average.

Businesses with new:existing ratios between 40:60 and 20:80 can be considered as 'healthy grown ups,' as they're typically more than 7 years old and have a five-year CAGR between 20 percent and 60 percent, with the lowest churn rates of any companies in the study.

A ratio of 10:90 or worse is bad news, these businesses, 'old cash cows,'  are practically dying, showing declining revenues over the last three to five years.

"Two companies with the same revenue mix may tell very different stories and drive growth in very different ways," says Shauli Rozen, head of professional services at Optimove. "A quick example might be two companies that both derive 75 percent of revenue from existing customers. One might be acquiring many new customers and converting only a small portion of them to active and loyal customers, while the other may choose a more focused acquisition strategy, acquiring a smaller number of new customers, but turning a larger portion of them into loyal, long-time customers".

You can read more about the findings on the Optimove blog.

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