Retention vs. Acquisition: Deciding Where to Focus Your Marketing Dollars

Peter Drucker, one of the most brilliant business minds to ever live, once said “the purpose of a business is to create a customer.”  While I never met Drucker, I’m fairly certain he would agree the second half of that statement could have been “and then keep them forever.”

I think we’ll all agree that customers are the most important part of any business. Without them, there would be no business. So why do most distributors spend most of our marketing dollars on finding new customers vs. nurturing the ones we already have?

Don’t get me wrong, we need new customers but not at the expense of the ones we already have, right? It’s an age-old question I know, but one worth revisiting as you are wrapping up 2011 and starting to think about your 2012 plans. To set the stage, here’s some interesting findings from Small Business Marketing Strategies blog -

The cost of customer acquisition versus customer retention could reach as high as 700%, according to a report by Frederick Reichheld of Bain & Company as below:

  • Acquiring a new customer can cost 6 to 7 times more than retaining an existing customer
  • Over a 5 year period customer attrition rates could reach as high as 50%
  • Businesses which boosted customer retention rates by as little as 5% saw increases in their profits ranging from 5% to a whopping 95%

Now you’re thinking… those numbers don’t apply to my business. Well, they just might. Here’s some interesting promotional product distributor stats we’ve collected from distributors of all sizes:

  • Promotional Product Distributors experience buyer attribution rates of 40-60%
  • Average tenure of a promotional product buyer is one year
  • Average promotional product order size has gone down 31% in the last 3 years
  • Most industry sales professionals spend 90% of marketing efforts on new customer acquisition

Obviously, there is an opportunity to significantly impact your business by focusing more on your existing customers. Here are a few ideas that are inexpensive and fairly easy to get started:

  • Reach out to your clients at once per month via email.  It doesn’t have to be fancy, just talk about a few cool products you used in a recent project.
  • Reach out to clients that haven’t purchased in at least three months.  Just say you miss them and you’re available to help with upcoming projects.
  • Update all of your communication channels (email, presentations, invoices, etc.) with ways for customers to connect with you (Facebook, newsletter, LinkedIn, etc.).

Branndon Stewart is vice president of marketing for Promo Labs, a provider of sales and marketing tools for distributors.

Image credit: Mitch McVickar