To grow a business you need customers. Many think that by getting more customers your revenue and therefore profits will also grow but this is not necessarily the case.
There is no point filling your bucket with new customers if it has a hole in it. If you are losing customers then you need to find out why because you might just be doing more damage than you think in the long term.
Small business accountants very rarely get their clients to understand the importance of knowing the number of customers they have, the average spend and the number of times they spend in a year. These are very important components of what is known as the growth equation.
Figure 1: Losing a customer is neither pleasant nor inexpensive in many cases.
1. It's Easier To Increase Revenue From Your Existing Customers
Everybody spends an exorbitant amount of money advertising to get new customers. However, have you also looked at your existing customer base?
There is no definitive answer but research suggests that on average it costs 4 to 10 times more to find a new customer as compared to keeping one.
If your customer likes you and trusts you they are more likely to buy a new product or service from you than if they don't know you at all.
Therefore unless you have a customer that is a nightmare and one you should never had taken on in the first place, hold onto them like gold!
2. A Happy Customer Is More Likely To Refer
Your customers can be living and walking talking advertisements for you with no extra cost. We all like to be talked about nicely.
In today's internet hungry world, will you survive the digital interview (and I'm not talking about the visit to your doctor for a check up)?
Many will now search for reviews on your product or service before doing business with you. Having a happy customer will be more likely to get you a favourable review.
Think about it particularly when you look at the points in this blog.
3. Longevity Of Customers Increases Your Business Valuation
When somebody is looking to buy your customer, as part of due diligence they are going to ask their business valuer Sydney to do an analysis on your customers which will include some commentary on customer retention.
A business that shows a history of repeat business will naturally get a higher small business valuation and therefore higher sale price than one that shows people coming and going.
Figure 2: Look after your customers and they will keep coming back.
4. The Life Time Value Of A Customer
The best small business accountant will tell that if you lose a customer it's not just the amount they spend with you in a year. Sometimes they will last for 5 to 10 years! Now if you do the sums, how much just walked out the door exactly?
Figure 3: The best accountant (Sydney or Dubbo) will tell you the lifetime value of a customer and the importance of retaining them. Photo courtesy Balmain Baz and Lara Scolari Gallery Balmain
Never forget the importance of the customers you already have! Imagine that they have a message on their forehead that says "make me feel important" because at the end of the day, if you don't look after the good ones you don't have a good business.
A good business gets new customers regularly.
A great business keeps them.