Use Your Customer Profiles To Prepare

You might have missed the news in the past couple of weeks, with the lightning-fast news cycles or July 4th celebrations: Americans are going to have to start repaying their student loans in a couple of months.

What’s that have to do with me? you might be asking.

Well, the pause in student loan repayments during the COVID pandemic translated into extra money each month for those Americans who were in repayment. Which is a good thing when we’re living through the economic and personal disruptions caused by a global pandemic.

All Good Things Must Come To An End

But all that’s coming to an end later this Summer. Interest starts accruing, and payments will once again be due. Which means that this extra discretionary income for borrowers is going to dry up. On top of that, consider the higher prices we’re already paying for necessities like food, insurance, and rent, and borrowers are going to have even less money to spend.

Is this going to mean anything for your business? How can you tell? Read on to learn how to use your customer profile to measure the impact on your business and start planning now so you’re not blindsided come Fall.

Who Will The Repayment Pause Impact?

According to the Congressional Research Service, nearly 1 in 6 adult Americans have federal student loan debt. That’s almost 43M Americans who’ve had extra money in their budgets each month, and have been spending some portion of it in the US economy.

Which People Are We Talking About?

The NY Fed and several banks have looked into this, and find that the average borrower tends to be younger, single, and female. They also tend to earn less than the average US consumer. As for the amount of money they’re going to have to start redirecting to loan repayment, this WSJ article (gifted for you!) cites estimates from $188/mo to $390/mo. That’s a not-insignificant hole in your monthly budget. Now look at borrowers according to their generation. Just 2 generations — Gen X and Millennials — owe the lion’s share of student debt.

Human hand counting dollar bills

Are They Part Of Your Customer Base?

With some more details about exactly who is going to have less discretionary spending come the Fall, what’s this mean for your business? Well, the first step is to determine just how large a part of your customers these groups make up.

  • How many of your customers are like the average student loan borrower mentioned above: single, younger and female? What sorts of items or services do these customers tend to buy? Are they the lower-margin or the higher-margin items?
  • Next, think about the two generations that owe the lion’s share of student debt, Gen X and Millennials. Are either of these generations among your best customers? Are they part of your customers who you’re most likely to retain? How sensitive are they to upsells and bigger-ticket offers?

What Can You Do With This Information?

It’s all well and good to know this information, but unless you take action on what you know, it won’t be very helpful.

Maybe this exercise uncovers that you’ll have minimal exposure to the impending decrease in discretionary spending. Terrific! Keep an eye on your numbers like you normally do, and be on the lookout for any signals that are out of the ordinary.

Not sure how to start looking at your data? Check out my blog post for a step-by-step walkthrough to get started. Or download my Data Jumpstart Guide for my 5-Step process. (It’s also available as a private podcast feed!)

But what if you’ve realized that these groups of borrowers are more important to your business than you’d realized? (Because it’s not every day that you break down your customer base by Baby Boomers vs. Millennials vs. Gen X!) If you’ve found that these groups make up the customer base for some of your best-selling products or services, now’s the time to start implementing some changes.

  • Create scenarios of what a decrease in their behavior is going to look like in 1 month, 3 months, 6 months…How will shortfalls impact your bottom line? And what effect will they have on your Quarter 4 and Holiday season?
  • Take a look at what products are also purchased with your best-sellers. Can you design a creative way to package them together with minimal impact on your profit margins?
  • Now’s the time to be strengthening your relationship with these groups, if you haven’t already started. When’s the last time you reached out to them, maybe via email or phone call (depending on your business), and asked how your solution is working for them? Are there unmet needs you weren’t aware of that you could begin to fill?

Knowing Your Customers and Knowing Your Customers

Once you have this kind of information about your customers or clients, you can plan out the second half of 2023 with more confidence, on a foundation of solid numbers. And you’ll know whether and how you need to change course now to ward off difficult situations come the Fall.

So wise and worldly readers, how well do you know your customers? What are you doing to prepare for the end of the repayment pause this Summer? Let me know in the comments below.

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