As you grow your business it’s easy to take existing customers for granted and miss out on a major source of potential revenue growth. Depending on the study you believe, acquiring a new customer is anywhere between five and 25 times more expensive than retaining an existing one, while increasing retention rates by just 5% can increase profits between 25% and 95%1.
And it’s actually harder work, riskier and more expensive to win business from new customers than it is to retain your existing ones. Even the most determined sales campaign may only see one in four prospective clients sign up, points out Martin Brown, CEO of business growth advisor Elephant’s Child.
“With current customers you’ve already invested the time, effort and money required to build the relationship, trust and systems for transaction, so everything is geared to win more business from them.
“Cranfield School of Management suggests that 88% of a business’s effort should go into selling existing products to existing customers because it’s easier, quicker and far less risky than either selling new products and services or winning new clients, or a combination of both.”
For Martin, the foundations of retaining customers lie in nurturing good relationships, developing empathy and trust with them, and understanding what they need.
“That also means consistently delivering on the fundamentals, in terms of quality of your products and service and timescales and, if you have service level agreements in place, making sure you stick to them.”
Therefore, it’s important to focus hard on account management to develop and maintain existing relationships and grow business from them too, preferably using dedicated account managers.
“It is best to have people in this role who are not focusing on new business sales; farmers rather than hunters, so to speak,” he points out.
“Even with good account management things will still go wrong from time to time but rather than going on the offensive, an honest and rapid response demonstrating you’re taking the issue seriously and acting on it will inspire confidence.”
Opportunities with existing clients are often missed Martin says, but if clients are buying one of your products or services then they may well buy others, so make them aware of what you have to offer.
“Cross-selling and upselling – we call it ‘juicing the business’ – is a great way to drive additional margin and trust from your existing customer base because the trust and systems are already there.”
At the same time, helping clients to consolidate the suppliers they have to deal with can also save them time and money, too.
Martin advises rigorously monitoring customers to assess how profitable they are for you and that includes looking at how quickly they pay, the demand they place on the business and their risk profile.
“Don’t make assumptions, because not all customers are equal, and their businesses will also change over time. Profile and classify them so you can make decisions about the relationship you want with them. For example, if a customer delivering £10,000 revenue a year requires similar time and resources to service as one hitting £1m, it may be time to let them go,” explains Martin.
The customer is king
Nurturing existing customers has certainly been driving success for entrepreneur Chris Stappard, co-founder of Newcastle-based mid-to-senior executive recruitment specialist Edward Reed.
The nine-strong company has seen its customer base shoot from zero to 50 since 2013 and now boasts a client retention rate of 60% – and it continues to grow.
Chris explains: “We started out with no clients and, as we’ve added each new client, we’ve worked really hard to cultivate our relationships, which are primarily at board and shareholder level.
“This is achieved not only through good service, but by adding value. For us, that means encouraging regular personal contact and spending time with clients and listening to what they have to say, providing them with market insights and recruitment sector updates, and introducing them to other useful businesses and advisers.”
He concludes: “In my view, our approach of caring for our customers and taking the relationship beyond purely transactional processes is what has made us a go-to recruitment brand in the North East.”
1 Source: Harvard Business Review, October 2014
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.