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Acquiring new customers is expensive

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A recent article in well-respected business daily ran an interesting story that restated a position repeated 100 times over the past 30 years: “Acquiring a new customer costs about five to seven times as much as maintaining a profitable relationship with an existing customer.”

Yet how many businesses routinely engage their best customers in discussions about the importance of their brands or products? The answer is surprisingly few, as most companies are often times focused on growing their business the old-fashioned way—beating the streets in search of those elusive new customers that are hard to find and expensive to acquire.

Some companies acquire new customers at a small profit, but that is usually the exception rather than the rule. It is far more likely that companies will pay from $5, $100, $250 and more to acquire new customers. These figures then start moving the discussion in the direction of lifetime value. Why? Because it will take many years of sales (and more marketing investment dollars) before a profit is turned from a new customer that comes on board at a cost.

That is, in part, why acquiring a new customer costs five to seven times as much as maintaining a profitable relationship with an existing customer. Businesses already own and posses the names and addresses of their best customers—the ones who know them and trust them. Most often we have a vehicle in place that easily allows us to contact them and them to pay us for our services. Spending money with us is something these customers have done frequently in the past and their commitment to us can range from mildly satisfied users of our products and services to raging, passionate fans.

These businesses often have vehicles in place that allow them to inexpensively keep their brands in front of customers. They routinely send bills or products where it is easy to include additional information about the superiority of their brands and products and discuss (in a very direct way) the great working relationship they share with the customer. They should be talking to them on the phone and via e-mail so they can ask, “How’s our performance, or what additional services could we provide or improve upon?”

Still, many companies choose to seek out new customers rather than communicate weekly with their best customers. Perhaps in part because we envision those customers with which we have no relationship spending money with our competitors and so perhaps it fuels our competitive juices to steal market share. I’m not sure of the psychological reasons behind it, but from a dollars-and-cents position, it makes far more sense to wine and dine those established, best customers and names you own then to pay costly acquisition expenses seeking new relationships with those you have not yet met.

Ralph Heath is president of direct marketing agency Ovation Marketing (www.ovationmarketing.com). He is author of “Celebrating Failure: The Power of Taking Risks, Making Mistakes and Thinking Big” (Career Press, July 2009).

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