You've all heard about the lifetime value of customers. But their value is far more than just the sales value of them staying with the same model car, as an oft quoted example gives. Existing customers are more profitable than new customers
Behind the saying is the fact that existing customers are more profitable to you than new customers. Yet businesses are constantly extolled to sell more, without any qualification what so ever. We are told "revenue is tied to sales volume". Quite true, but.....
No-one would argue with the proposition that business begins with the sale, but which sale and to whom can be important. The wrong sale can cost you profits either directly or as an opportunity cost. By opportunity cost we mean the same sale elsewhere might have made you a higher profit. Remember the 80/20 rule. Eighty percent of your profits will come from twenty percent of your customers.
Perhaps Dan Kennedy. Well known marketing exponent, had it right when he said "It's infinitely easier and always more profitable to work at increasing the purchasing of your satisfied customers than it is to go out and add new ones."
We wouldn't disagree. There are many reasons for this, but amongst the most important are that you have established your expertise, credibility and trust.
It costs money to acquire new customers and to set them in your system. And new customers tend to buy in smaller amounts.
Businesses often spend a small fortune to get new customers. Think of your advertising. Some of it is intended to remind people of your business, but mostly it is intended to encourage new customers to buy.
There are three good reasons why is important to concentrate on existing customers.
The benefits of intentionally focusing most of your selling and marketing efforts on your current customers are: lower costs for additional sales, greater customer loyalty, higher customer satisfaction scores, and more profits.
So just how might you go about increasing sales to existing customers, and increasing the profits to your business by more than if you just got out on the street and chased more sales.
If you could keep the same number of customers but increase the size of their orders you'd increase your revenue, and if you managed to do that without reducing your margins, you would increase your profits.
Or if you could keep the same number of customers, and the size of their order, but persuade them to consume more often and therefore order more often you would also increase revenue.
Let's work through three ways you might do this in your business.
1. Building on the ideal customer.
2. Leverage off the usage cycle of your product or service. It works like this:
I recently developed a program for a children's clothing shop, with a "club" a special gift each birthday and a reminder program before the birthday.
3. Staying in communication, developing and building the relationship. You can't have a relationship with new customers. You can with existing customers, and that gives you the ability to maintain regular contact and offer targeted specials.
So at the end of the month where are you. You don't have to chase a raft of new customers for payment, you have no more companies on your list but your return per sales call has gone up, your sales have gone up, and, more importantly, so have your profits. Through practical experience you have found that it is far easier, and more profitable, to sell to existing customers. Another profit leak has been plugged.
Some profit losses are pretty obvious - so you fix them.
BUT, what if you don't know profits are leaking, cash out the door?
Possible leaks could be anywhere.
Are there some clues or symptoms that are tell-tales?