Todayâ€™s profit fix is a call to arms to every business out there. Â Itâ€™s the battle cry in favour of looking after our existing customers. When done well this can be the cornerstone of a solid, secure and profitable business be it online or bricks and mortar.
Perhaps the most important resource at your disposal is your customer base. Â Not only are they a potential source of additional income but they have great referral potential. Â Iâ€™ve always found it puzzling that so many companies adopt the hungry hippo mentality. Â Namely, the attitude of always hunting for fresh sales and never cultivating whatâ€™s already been caught. Â These companies feel the need to constantly generate revenue from new customers and this, as Iâ€™ll show below, can be a financially wasteful tactic (as well as breeding ill-will from existing customers).
The typical evidence of this thinking is when a company offers a â€˜great dealâ€™ which only applies to new customers. Â I think thatâ€™s a bit of a kick in the teeth since it takes no account of the loyalty existing customers are showing. Â It contributes to a higher customer loss rate which forces the business to aggressively hunt for new customers which perpetuates the cycle. Â And because this is a company-wide marketing strategy it often shows itself on websites. Â In fact websites are typically the spearhead for this marketing approach since most prospects will come to the website as the first point of contact.
Customers are volunteers in support of your business. Â They have freedom to choose whether to continue using your business or to go elsewhere. Â However, the better the service you can give them the less likely they are to move even if the competitorâ€™s deal is attractive. Â This is partly to do with the law of reciprocity which states that we feel obliged to return a favour if one is done to us first. Â So, by looking after and cultivating the relationships with your customers you compel them to feel loyal to your business thereby minimising the likelihood of them jumping ship.
Fundamentally, I donâ€™t have a problem with attracting new customers with a great deal but I do when it excludes existing customers â€“ to me itâ€™s a short sighted, and ultimately, counter-productive approach.
Beyond the creation of a loyal customer base there is also a strong commercial reason why we would want to really look after our customers and that is called â€˜cost of acquisitionâ€™. Â Cost of acquisition or COA is the cost to you for acquiring a sale from a new customer. Â This includes the overhead of marketing (your brochures, business cards, exhibitions, etc.) and the overhead of sales (cost of sales people, sales systems, telephone calls, etc.).
Now compare this with a sale to an existing customer. Â Here your COA is dramatically reduced and could even be zero because you are not spending anything on them becoming a customer since they already are a customer.
Letâ€™s run through an example. If you make Â£100 gross profit on a sale, the first time you make the sale to a new customer you have to subtract your COA from the sale. Â Letâ€™s say your COA is Â£40, your first time sale profit will actually be Â£60. Â However, the next time you sell to that customer your profits will be back up at Â£100!
So, once you have acquired the customer selling to them again will actually be more profitable than selling to a new customer.
Now the importance of mining your customer-base becomes apparent â€“ sales from existing customers are far more profitable. Â Plus, letâ€™s add in the fact that if youâ€™re providing them with a great service they will be more receptive to other products and services you offer making selling to them even easier.