New or Existing Clients - Where to Spend Your Time
A continuing discussion point of most senior executives is the relative importance of 'new clients v existing clients' to support the business in its objectives.
Both have their place, not only in growing the business but also in risk mitigation.
New clients will grow not only the current revenues but also the potential revenues and will also mitigate the risks of the client base. Whereas, growth and retention of the existing client base often results in higher margin, demonstrates quality of service and hence increases referral potential.
In a recent study undertaken by Invesp:
Acquiring a new customer is five times more expensive as retaining an existing customer.
44% of companies admit they, "have a greater focus" on acquisition, while 18% focus on retention (the rest claim to have an equal focus).
89% of businesses, "see customer experience as a key factor in driving customer loyalty and retention."
76% of companies see Customer Lifetime Value as "an important concept for their organization."
The success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%.
"Increasing customer retention rates by 5% increases profits by 25-95%."
So we know that it is important to build a business through both new client and expanding existing clients but the next question is "how do I allocate my time on the right mix of prospects and clients?".
The first step is to identify the factors that will be a predictor of "potential" for that business to be a good customer in the future. These are the structures, operations or behaviours of the business that are common throughout the higher performing clients. An example of this could simply be the quality of the relationship that business has with your competitors.
The next step is to define "high potential", medium potential" and low potential" for each set of criteria. In the example of their relationship with your competitor:
1. A low potential definition could be "Has an excellent long term relationship with its current provider"
2. A medium potential definition could be "Has a sound relationship but is willing to consider options"
3. A high potential definition could be "Has a poor relationship with existing provider"
The third step is to use these definitions and 'score' each Client and Prospective Client using the scoring definitions created in Step 2..
From this scoring, you will probably see a direct correlation between the scores and the revenue actually earned. However, we often find that client portfolios have numerous clients that score well but to date the revenue has not been earned. These are often the clients that have the most potential to grow.
Likewise when targeting new clients, those with the highest score will have the most potential to create a relationship with your business.
So now that all clients and prospects have been scored, the most effective sales and account management people allocate their time according to the potential than simply by the revenue earned or due the issues and opportunities arising at the time.
Tips from John Buchanan, Beyond 19, Coaching Practicing Lead:
1. Good risk management of any team relies on an accurate assessment of current playing list (and support staff) through performance data and qualitative measures, based around what is the cost of having them involved verses the benefits to having them involved.
2. This assessment process is ongoing and is balanced by the cost/benefit analysis of bringing new people into the team. Again use available performance data plus qualitative measures such as how long will it take to bring new member 'up to speed'; what is the cultural fit for the whole team; how will the team dynamics be changed replacing old with new.
3. More often than not, there is insufficient information to make a clear call, and is very situational dependent on the overall results of the team. The coach must back himself or herself to go with gut feel, intuition, experience to determine what is the best mix for the team, and therefore the relevant changes to be made.