Why “farming” is as good as “hunting” when it comes to marketing
Forgive me if this title sounds like I’m recommending you treat your customers like cattle or sheep, waiting there ready to be milked or shorn!
I’m simply using an analogy and it is absolutely not the way I want you to treat your customers. I’d like you to look at this in the context of you running a profitable, sustainable and long lived business. And a business like this really does need long-lived customers too.
I’m going to share a few tips with you that I think will be useful. Often businesses are not making enough profit from their existing customers, have poor cashflow or have some other inefficient processes or systems. Thus, they are constantly falling behind and see the only solution as, get new customers.
We did some research for a building product company and found that the retail sales people were discounting product by 10 per cent almost as a habit even when not asked to by the building customers. We found that builders would actually pay four per cent more for the product if it was delivered on time. Their problem was with delivery times, not cost of product because delayed delivery cost them more in lost wages.
In another example of inefficiency in a business, we helped a software company break down the silos in their business that prevented them also promoting their hardware solutions to software clients. We wrote one letter that delivered $2.5m in new business from an existing customer – who incidentally had no idea the company offered hardware too!
Let’s talk about Lifetime Customer Value.
This is a calculation that adds up all the purchases a customer makes in the entire time they are a customer. There may be hundreds of individual transactions of a certain value, but overall the customer is valued much higher than an individual purchase. The key is to recognise their long-term value, not the amount of each purchase.
But surprisingly many businesses don’t see it this way.
Another key element in any business is churn rate.
If you are losing 10 per cent of your customers every year, you have to find 10 per cent new customers just to stay at the same level. And if those 10 per cent of new customers are costing you five to eight times more to acquire, you can see your business is overall going to be less profitable than if you kept more of the existing customers and didn’t have to go out “hunting” all the time.
Don’t get me wrong, I like “hunting” new clients. But if you do both, you will see a business that expands faster, makes more profit and has a better reputation for servicing clients over the long term. Looking after clients, delivering them value, keeping them delighted is really the only way you’ll keep them anyway.
Here are some other statistics to keep you interested in exploring how to be a better “farmer”:
- The probability of selling to an existing client is up to 70 per cent whereas it is only 5 - 20 per cent for a new prospect.
- Existing customers are 50 per cent more likely to try new products and 31 per cent more likely to spend more compared to prospects.
- Three times as many companies focus more on acquisition than retention.
- It is five to eight times more expensive to attract a new customer as it is to keep an existing one.
- 85 per cent of businesses in our benchmark had not surveyed or promoted to their existing customer database in the last 12 months.
You should also consider how easy and inexpensive it is to market to someone for whom you have an email address, mobile phone and address compared to the huge sums it costs to advertise in the paper, do paid search, SEO or online display advertising.
I want you to consider how you can be a better “farmer!” Think of some ways you can do a better job of keeping your existing customers today. And maybe you won’t have to be madly trying to “hunt” new ones all the time.
About the contributor:
Hunter Leonard is The Marketing Chef. His passion for the past 25 years has been to help business owners find their sweetspot and build a better marketing strategy. Hunter has benchmarked over 1200 business owners to understand their needs and wants in regards to marketing. He has won six major marketing awards for effectiveness, contributed to over $2b in sales growth for his clients, and consulted directly to more than fifty companies in 20 different industries. Website:http://bluefrog.rapidmarketingcentre.com.au