How Businesses Make Money From Active Customers:

Now that we've explained what active customers are, we'll look at the various ways that businesses generate revenue from their customer base to begin with. These are considered "organic growth" strategies:

1. Acquiring more new customers: Gaining active customers begins with encouraging first-time purchases. Businesses achieve this through strategies like targeted advertising, promotional offers, and building a strong online or physical presence. By attracting and converting new customers, they create a foundation for future growth and income. Customers are not "customers" until they have made a purchase.
2. Get active customers to purchase again: Once a customer has made an initial purchase, businesses work to keep them as active paying customers. This can involve offering incentives for returning, such as discounts on future purchases or loyalty rewards. Additionally, upselling complementary products or cross-selling related items helps maximize the customer's lifetime value. For subscription models, getting customers to buy more times usually involves working to get customers to keep their subscription for longer (although there could be upsells too).
3. Increasing transaction values: Businesses aim to increase the Average Order Value (AOV) by suggesting premium alternatives or bundling products together at a discounted rate. Limited-time offers and add-on suggestions at checkout further encourage customers to spend more per visit, boosting revenue without acquiring new customers.
4. Expanding via referrals and affiliates: Leveraging existing customers to promote the business can be a cost-effective growth strategy. Happy customers can bring in new leads through word-of-mouth referrals, which are organic and free. Meanwhile, affiliate programs incentivize active customers to refer new paying customers in exchange for a commission, helping businesses expand their reach while maintaining a controlled cost-per-acquisition.

Organic vs Inorganic Growth:

In the above section, we looked at ways to get customers through organic growth.

In addition to organic growth strategies, businesses can also acquire active customers through M&A deals. Once a business starts to reach the limits of it's Total Addressable Market (TAM), management will often decide that it's more efficient to growth though M&A (buying companies), than it is to do more of the same. An example of a business using an M&A deal to gain more active customers could be purchasing a competitor.

To learn more about this, we recommend our guide Organic vs Inorganic Growth. It's much more common for established businesses to pursue growth through M&A deals. In the guide above, we will also look at why this is true.

Recommended Resources:

• Average Revenue Per Customer (ARPC)
• Product Line
• Click & Mortar
• Earnouts in M&A