Dancing with Your Sugar Daddy (part 1)

The Leverage of The Customer
Customers are the most valuable assets your company has. They’re the source of revenue, the Sugar Daddies that pay the rent. The nature of many businesses requires a constant flow of new customers. Others have the added leverage of being able to create ongoing relationships with customers that deliver more business without more marketing investment. Auto dealers, for example, need a constant flow of new car buyers, but get ongoing revenue from service agreements. However, some companies spend so much time looking for new dance partners, that they forget who brought them to the dance. Yes, you might need new customers to grow. But, make sure you keep focus on the sugar daddy you’re dancing with: your current customer.

Customer value comes in two forms. First, the immediate revenue from every transaction you make. Second, the projected revenue based on your ability to retain the customer, that adds to your total asset value. Think of your business as an apartment building. Your customer is the tenant. You get revenue every month, plus the long-term value of the building based on its revenue generation potential over an extended period. Keeping your customer coming back for more is the name of the game.

Getting A Sugar Daddy
To understand the leverage value of your sugar daddy, consider what you have to do to develop one. Generally, it’s a 3-stage process, each of which has a set of strategies, tactics and costs. You’ve got to:

  1. Find them
  2. Sell them
  3. Keep them

1. Finding (Prospecting) is the process of identifying and reaching a prospective customer. Get out your checkbook, because this is the most expensive way to get a new piece of business. Think of a start-up company with no customers. Marketing costs in the first year of operation may actually exceed revenue, because the investment in business development needs to be made before business is generated.

The reason that prospecting is so expensive is that the methods for reaching out to and communicating with prospective new customers generally are pay-as-you go. Advertising and direct marketing are the most common forms of prospecting and even though you can reduce prospecting costs by targeting and inexpensive contact measures, prospecting costs can often exceed 20% of the first year’s revenue.

2. Selling (or Promotion) is the process of creating trial and repeat use of a product or service. Once you’ve identified and communicated with a prospect, there needs to be either time spent or an offer made that creates a “first” sale. At times, this process needs to be continued to activate repeat business. Sales and promotion can often exceed 10% of total revenue, including sales commissions and promotional costs.

3. Keeping (Customer Service) is the process of creating customer loyalty that leads to additional sales without promotion or selling, essentially creating a “relationship” with the customer that leads to a pattern or habit of buying your product or service. Customer service can often be between 2-5% of total revenue.