What is the Lifetime Value of a Retail Customer of Cannabis?

What is a retail customer worth to a dispensary? That was the question our co-founder and Head of Data Science, Bobby Fatemi set out to answer.

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Using a sample of 5 retailers with validated historical data going back 5 years, he analyzed the lifetime value (LTV) of their customers to highlight a few key points:

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1. What is the retention rate of a customer over time?
2. How many orders can you expect from a customer over that period?
3. What do they spend in total over that time?

He discovered some very interesting facts about our retail clients’ customers and what each one is worth to a retailer if they retain them. With the operative word being retention, we have some advice to you on ways you can best retain customers over time. But first, let’s dive into the results the data revealed. Retained customers:

• Return on average every 3 weeks
• Spend on average $130 per order
• Are loyal for an average period of 3 years
• Generate on average $7K in sales over those 3 years

If you look at the figure below, you can see the data we analyzed on customer retention. The figure on the left represents a single cohort of customers in a given period. The graph follows that same cohort of customers over time to see how long they continued to order at the store of their choice.

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Only 16% of the customers continued to shop over the 5 year period we analyzed. These may even be the shops’ employees! These are people who will never shop elsewhere. But what about the rest of the 84%?

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They decline rapidly over the first year, even after the first quarter (an 18% drop off!). This attrition curve reaches 50% by roughly the 10th quarter, which was the period of time we calculated LTV from, nearly 3 years.

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Over that time, our cohort spent $7,000 per customer. That’s a great return! The real question is “how do you drive your retention up to beat the attrition curve?”

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The Takeaway

If you could retain 25% of those lost customers over 10 quarters, that represents a lot of revenue. In this analysis, we started with 212 customers. 25% of them are 53 customers. At $7k a pop, that totals $371,000 in revenue.

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Most often, cannabis customers shop with whoever catches them at the right time and place. That means any text or email marketing hitting your customer base from any other retailer represents a threat of that customer shopping elsewhere. The last touch they receive before shopping is the most important one in driving their journey.

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One of the best ways to protect customer retention is to communicate with them frequently where they are most likely to pay attention: their phones.

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When retailers use Happy Marketers to text or email their customers, the data almost always includes recaptured customers; these are people that haven’t come into their store in over 90 days. Every day retailers are recapturing these customers through our system. These customers represent the counter-pressure to that attrition curve shown above.

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The more retailers engage in text and email marketing, particularly using best practices behind their messaging and engagement, the more they can increase the retention rate of their customers and realize that LTV, as well as fight against the gravity of the attrition curve … and the happier they’ll be.

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