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I am sure many of you will have heard the saying “If you love something, set it free. If it comes back, it’s meant to be.” While this may be good advice for relationships, it’s certainly not good advice for business. A recent whitepaper examined how many companies focus too much on share-of-market and the resulting damage. Market share has always been the leading measurement of success. The article examines why using only this measurement is faulty, and why a focus entirely on market share is actually bad economics.
The focus on market share, according to the article, is a result of feeding our egos. It’s certainly an easy measurement. One could assume that capturing market share is an indication that their business is not only successful, but also growing. As I, along with countless other experts have said in the past, it is much less expensive to retain and sell to current customers than it is to acquire new ones. In addition, existing customers spend 67 percent more with a business than new ones do, according to Inc. magazine. If it costs up to five times more to make a sale to a new customer; yet it’s easier to sell to an existing customer; and they also spend more; why do we continue to focus on new customer acquisition?
According to the article, there’s a feeling of accomplishment in market share growth and new customer acquisition, whereas “focusing our attention on customer relationships often makes us feel like we’re doing less – even though we’re usually accomplishing more.” Marketing to new customers is actually the “fun” part and acquiring new customers often generates more income for sales reps than retaining existing ones.
Customer retention, on the other hand, is considered the “trench work.” There is less sense of satisfaction in upselling an existing customer and, typically, the compensation is lower for sales reps. Therefore focus and quotas tend to be based on new customer sales, rather than on customer retention sales and actions.
Have you ever examined your fixed ops revenue to find out what percentage is derived from existing customers versus new ones? How much of your sales are from repeat customers or referrals from them? By focusing your marketing efforts and growth strategy on new customer acquisition, you are leaving money on the table. Your existing customers are the “low hanging fruit”, according to the whitepaper. It’s certainly understandable for salespeople to focus more on new sales than retention. It’s much easier to be fed leads and wait for ups to come to the dealership than to follow-up with past customers. Yet, the truth is that by following up with your existing customer base, your success ratio will increase. Assuming the customer had a great experience at your dealership, you’ll have already established rapport and trust with them and will typically see higher gross profits than you would from a new customer.
Don’t wait for sales to decrease before you begin retention and loyalty marketing. Ignoring your existing customer base will increase your defection rate and detract from any growth you may have experienced through new customer acquisition. It’s your loyal customers that keep your business in the black when sales are down. If you fail to pay attention to them now, they may not be around when you need them.