The idea that it costs five times as much to find a new client as to keep an existing one may be an accepted piece of business wisdom. However, it's not clear how accurate it is.
For one thing, marketing experts point out, much can depend on the business. An isolated fuel stop on an interstate highway seems unlikely to benefit from coddling repeat shoppers. And wireless communication companies appear to devote lopsided portions of their marketing to stealing each other's customers, as opposed to caring for existing customers.
At CollegeRecruiter.com, founder and president Steven Rothberg recently changed the salesforce's compensation to more richly reward new business for the Minneapolis-based job board for students and grads. "We were doing too much order taking and not enough hunting," Rothberg says.
The imbalance showed up in sluggish sales growth that he traced to an over-reliance on sales to existing clients. He found the trend worrisome. "Where are we going to be a year from now or five years from now if we're only searching for sales from existing clients?" Rothberg reasoned.
Focus on How to Find New Clients or Retain Existing Ones?
A more typical problem for business owners may be too much interest in how to find new clients, according to Toronto marketing consultant Noah Fleming. "Businesses seek new clients and new markets because it’s fun and sexier," Fleming says. "Acquisition is sexy; retention is boring. You get almost instant feedback if it’s working. Retention is a lot harder to measure."
Fleming suggests business owners should start with a 50-50 balance between cultivating new business and coddling existing clients. The ultimate percentage may vary, due to factors such as the frequency with which clients can be expected to order. Auto dealers, for instance, may not expect repeat buyers to come in more often than every few years, while CollegeRecruiter.com considers a client lost after 14 months without a purchase.
Fleming says even a 90 percent focus on existing clients can be viable for some businesses. "I have clients that have stopped traditional outbound advertising and focused all of that marketing budget on either improving relationships with existing customers or using existing customers as a tool to grow by, for instance, gathering referrals," he says.
It's likely a mistake to stop farming for new clients entirely, however. "Every business needs new customers to grow," Fleming says. "There's always going to be attrition. So there needs to be some intent to grow new customers. You just can't do that at the expense of taking your existing customers for granted."
One of the big advantages of existing clients may be that they are, to a considerable degree, presold. "They already like what you do," Fleming says. "These are people who are willing to spend more without having the effort of selling them on who you are and getting them to buy in to your value proposition. You should always be looking at what goods and services you can sell to existing customers."
The Cost of Finding New Clients
It can also be important to try to figure out and bear in mind the costs of finding new clients. Fleming claims for small- and mid-sized businesses, the costs of acquiring new customers can be higher than any other expenses except for infrastructure.
Just as the existing client-new client balance may be different for different businesses, New York marketing consultant Nancy A. Shenker believes some existing clients don't deserve to be kept. "Replacing loyal and profitable clients is time- and resource-intensive," says Shenker. "Existing clients are also the best source of new business referrals if they are wowed by [your] performance. That said, businesses should always break up with unprofitable clients and those that make them miserable and suck time and resources away from good customers."
Striking a Balance
To replace clients, whether they leave of their own volition or are invited to shop elsewhere, Shenker advises devoting a set percentage of time and resources to developing new customers. "New client and new marketing development are critical to the long-term sustainability of any business," she says. "I advise CEOs to spend at least 30 percent of their time looking to the future. They should be mindful of which sectors and opportunities they are pursuing to ensure their time and energy is well spent."
At CollegeRecruiter.com, Rothberg reveals that paying higher commissions for sales to new clients appears to have helped them strike the right balance. Including results from larger orders by existing clients, which they are also incentivizing salespeople to seek, revenues are up 25 percent, he explains.
"They have the incentive to increase business we do with existing clients, to win back old clients and to win new clients," Rothberg says. "And it's working beautifully."
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