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You Don’t Need Any New Customers!

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You Don’t Need Any New Customers!

Focus on Customer Retention

Stop overspending on customer acquisition and underspending on customer retention! Did you know that companies are more likely to allocate 6 times as much to the expense of generating new customers than they do to the much less expensive process of trying to retain their customers.

If your company is typical, it costs you five times as much to get a single new customer as it does to keep one you already have. Moreover, most businesses lose about 25 percent of their customers annually. If you could cut just 5 percent off of that customer loss, you could add as much as 100 percent to your bottom line.

Why is business lost?

Your competition is snatching up your clients. The main reason for their departure is that after you spend dearly to acquire them, you rest on your laurels, indifference sets in,and your competitor woos them away with careful attention to their specific needs.

What is the cause of indifference?

Most businesses don’t consciously choose to ignore their clients. They just don’t continue to focus on them. Typically, businesses are structured around the old mass-marketing paradigm. This aging standard marketing method is focused more on obtaining new customers, than it is toward retaining current ones. In the staffing business, many sales people are still trained to play the “numbers game.”

Make enough calls and customers will come.

While this will produce sales, it ignores the value of existing clients. A concentrated effort must be initiated in order to retain those customers who keep you fed.

Unfortunately, it is often easier said than done. To coordinate a marketing program geared to retain existing customers is not an afternoon’s project. It will require that production, quality control, customer service, and all the other routine business operations take a hard look at their current processes and make a dedicated effort to focus their goals on retention. This undertaking will be a new process because none of these functions were previously used in development of marketing plans geared to acquiring new customers. This exercise will be a lot like learning to ride a bicycle backwards, you know what you need to do, but the execution is tough.

Market-Share vs. Share-of-Customer

Again, the age-old marketing approach has been to calculate your market share by counting up your business’ total sales, and dividing by the determined grand total. How do you increase market share? Advertise more to attract new customers, then lower your price to get them to buy. Great, now you’ve (temporarily) increased your sales, and by design, market-share. Tomorrow, when your competitors catch on to your ‘Marketing 101’ strategy, you will regain your previous market-share and your profitability will suffer because of your lower price and increased sales and marketing expenses.

Remember back to that corner store where Betty knew each of her customers by name. Now, begin to look at the business you are getting, or not getting, from each customer. Then, try to increase your share of each customer’s patronage, one customer at a time. If a client were to place a total 6 orders a year for staffing, and your company received 2 of these, you would have a 33% client-share. This sounds impressive, but if you really want to increase profits, find out how to get the other 67%! Do this by giving them what they want and need; don’t be indifferent.

When you begin to nurture the relationship you have with each customer, you will also increase your share-of-customer.

Customer Retention vs. Customer Acquisition

Now that you’ve begun to think about how much you are under-spending on customer retention, consider the following example in applying this concept to your company:

Acquisition Emphasis Retention Emphasis
Cost to Acquire One New Customer: $20 Cost to Retain One Current Customer: $4
Acquire 6 Customers: $120 Retain 5 Customers: $20
Acquire 3 Customers: $60 Retain 20 Customers: $80
Total Cost: $140 Total Cost: $140
Total Customers: 11 Total Customers: 23

Chances are that your accounting for customers is not this cut and dry. The above example, simplistic as it is, is presented to reinforce the point of this article. Being able to formally account for the cost of acquiring and retaining each customer, although difficult, can be done. Your results and values do not need to be to the penny to realize that the theory of the previous example is accurate. Once you confirm that the cost to acquire is substantially higher than the cost to retain, you can then re-align your advertising and marketing campaigns to focus on keeping and developing professional relationships with your clients. When you take action to avoid losing your 25%, you will raise your bottom line, it’s that easy.

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