The business you’re chasing may be right under your nose.
By Roy Harryman
When customers get fed up, they leave for a competitor. This is called “churn” and every business hates it.
To counter this, companies experiencing a high degree of churn could improve their products and services. But that would be too logical! Instead, they continue to offer deeply discounted rates to new customers, often for a full year. After a year, these subscribers get the regular (higher) rate and the same lame service. Customers often switch again after the term is up, keeping the cycle of hire-and-fire going.
Maybe I’m living in a dream world, but why not make the service reliable, then reward customers after they’ve stuck around for a year? Then they might actually have an incentive to stay.
Yet as far as I know, hardly anyone does this. So, the trend of churn and burn continues. What if these companies spent the same amount to keep existing customers that they do to acquire new ones?
What happens when people stay with a business?
Customers do business with people they know, like and trust. When this happens, a relationship is built. A bond is cemented. And not only that, they invite others to join the relationship.
Think about it.
“Where’s the best place around here to get Greek food?”
“I like Niko’s.”
“Wanna’ grab lunch there?”
“Sure.”
If Niko’s delivers, it has a new customer based on satisfying an existing customer. And it spent no money in the process. Now, what if Niko’s invests in retaining this new customer with special offers via email or text?
Cha-ching!
Two customers have now become fans at a minimal cost. And all because Niko’s is good at what it does.
Spend less, make more
In my experience, a majority of business comes from past or present customers. Past customers return for additional services. Current customers ask me to take on additional projects outside the realm of our existing agreement. And both refer me to others.
These clients already know me, and I already know them. I know what they want to accomplish. The time spent on introductions is past, and we can productively get important stuff done. Everybody wins.
Trying to glue the new
Now, don’t get me wrong. New customers are wonderful. And they’re essential. Customers come and go, often for reasons that have nothing to do with us. The customer pipeline must always be flowing.
But consider this:
Introducing yourself to prospects costs time and money. Somehow, you have to get on their radar screen.
Studies show the vast majority of proposals to new customers (once you get a meeting) are rejected.
Even when you win a new deal, there is a “getting to know you” period that involves trial, error and resources.
Yes, you need new customers. But you need existing ones even more.
The research
I certainly wouldn’t recommend a business strategy based only on my personal experience. It’s too narrow to be universally applicable. So please consider these data points:
It can cost up to 500 percent more to attract a new customer than to retain an existing customer. Increasing customer retention rates by 5 percent increases profits by at least 25 percent. [1]
The probability of converting an existing customer (for additional services) is 60-70 percent vs. 5-20 percent to bring on a prospect. Repeat customers are more likely to purchase again and spend 300 percent more than new customers. [2]
“Your business shouldn’t be a revolving door. … When you imagine future success, picture strengthening existing relationships rather than forging new ones. After all, 80 percent of future profits come from 20 percent of current customers. … Investing in repeat business costs you less and makes you more.” [3]
What’s next?
If you agree with this assessment, what should you do now? Let me respond with two questions:
Do you know who your customers are?
If so, do you have a way to contact all of them?
If the answer is no, then you’re at the bottom of a hole staring up. It’s time to begin climbing out. Start today. Your customer database is the most important marketing asset you have (or lack). If the word “database” is intimidating to you, then substitute the word “list.” You need a detailed list of the people who have done business with you so that you can contact them. How do you get this information? We covered that here if you need a refresher.
Wherever you are, just start. And if you’ve already begun, seek ways to improve the process so you can acquire more and better customer data.
Roy Harryman is the author of “Small Business, Big Impact: A No-Nonsense Marketing Strategy For Companies That Do More With Less.” This column is an excerpt from the book.