Ask any established business owner or manager if they have a marketing budget and you will hear a resounding, ‘Yes’. It’s an essential part of their growth strategy and their connection to their market.
The average marketing budget ranges from 3-8% of revenue; however, many companies forget the employment costs of marketing managers and sales people. This adds considerably more to the marketing budget. All of this is primarily invested in customer acquisition, and the costs of obtaining a new customer can be significantly different across the multitude of strategies used in the sales process.
Know your facts
As W. Edwards Deming said, ‘Without data, you’re just another person with an opinion’. Most businesses cannot provide accurate customer acquisition data, i.e. the actual cost of buying a new customer. It will vary across the different lead generation strategies and the lag time it takes to convert a new customer. It’s vital to know what marketing strategy influenced a new customer to buy from you as well as the most successful and least successful strategies overall. This ensures you allocate resources to the most effective strategies.
Most business cannot provide the data to track the ROI of their successful and unsuccessful marketing strategies, usually because they do not have the time or a process by which to do it. This in and of itself is crazy. They waste so much time and money on dud marketing and prospects that increase the cost of customer acquisition.
When the economy is strong, the above issues aren’t such a big deal because everyone is busy and sales are strong. ‘So long as we meet the sales targets, that’s all that matters.’ But what happens when the tide turns and sales conversions are more difficult and budgets are harder to meet? Unfortunately for most businesses, the only strategy they have is to discount and make all kinds of deals to get the cash in. This is what kills margin and potentially entire companies and is where businesses make the the most common mistakes. It’s amazing how many sales and marketing executives do not understand the impact of giving away margin to get the sale.
Have you ever known a business that seemed flat out and then out of nowhere closed down? Plenty of cash coming in, but no profit to pay the bills.
The focus of most businesses when it comes to revenue generation is obtaining new customers. They’ll make all kinds of deals to get them in and then view their busy-ness as a sign of prosperity, while at the same time give little attention to their existing customer base (and often charge them more).
Have you ever felt frustrated by a supplier offering you a great deal that says, ‘new customers only’? Think of your insurance, telco or energy provider. How do you feel when your years of loyalty appear to have no value?
Smart businesses have a clear point of difference in how they assess the most valuable asset they have: their customer base. They see customer experience as the most critical process in their business, and they can only get it right with a great team. A significant point of difference is in how they invest their marketing budget. They actually have a budget for customer retention. They invest in their existing relationships. They know that it’s at least six times more expensive to buy a new customer than it is to get an existing one to return. That’s just business 101.
So why is it that very few businesses have a clearly defined customer retention strategy and supportive budget?
A simple solution
In the words of Jeff Bezos, ‘Obsess over your customers, not over your competition’. Make your customers the primary objective in your business strategy and ensure everything you do delivers on the golden rule of business: add value.
When the market gets tough, the smart businesses are already ahead of the game. They share the simple belief and practice that you first take great care of the customers you already have before you chase prospects. Remember the old proverb, ‘A bird in the hand is worth two in the bush’? This is vital when thinking about customer loyalty.
If you’re wondering if this approach still applies, then a great idea is to think about someone who has a long-established and successful local business. It doesn’t matter if it’s the same as yours–we all sell to people, so we are all essentially in the same business. Consider buying them a coffee (even if it has to be COVID-19 takeaway), and ask them about their golden rules to staying strong in a tough economy.
The reason why this is so important is that in Australia we haven’t had a tough economy for over 20 years, and most business managers don’t have the experience of navigating the ship in a financial storm. This is why advice from a senior business person or business that is at least 30 years old is so important.
Regardless of technology and social media, you will be surprised at the simplicity of some of these businesses’ strategies. The challenge is that they aren’t always easy to implement. It starts with great leadership and a great team. At the core of their strength will be a clear intention: everything they do must focus on their team and customer service.
If you find business to be a challenging prospect and are looking for a fail-safe strategy, then consider applying the simple mantra leading businesses apply every day: ‘Different isn’t always better, but better is always different’.