When I started my very first business I got so wrapped up in the “starting” of the business that I spent nearly zero time figuring out how I was going to actually get customers. Instead I was worried about coming up with the perfect name, pricing models, what was going to happen when I got a customer, I planned for just about everything, except the most important part of any business, the marketing. You may remember the Kevin Costner movie Field of Dreams, where in the movie the voice’s tell him “If you build it they will come”. That was how I thought I was going to get customers in my first business. I can assure you that the voice’s in the movie were not correct as it pertained to my business. Fast forward a few years and I had wised up a bit on my second business. For that business I understood how important marketing is, I even made a great plan but while making my plan, I made another massive mistake, I under-estimated the difficulty and the expense of getting a new customer.
Let’s take a dentist as an example. 100 years ago if you wanted to open a dental practice, you found a building, hung your sign outside, setup a pair of pillars near your chair, had a jug of whisky on standby just in-case and unlocked the front door. Since you were the only game in town, when someone had a tooth ache, they came to see you. Today before you even get your first patient, you spend a million dollars on build out and equipment, hire a few staff members, open your doors to greet your first patient only to see other dentists have built practices on all sides of you and the fun hasn’t even started. You now need to actually get people to stop whatever they are doing at that moment to entertain themselves, focus, take notice of you, feel they have a want or need for your service, get up off the couch, find a phone, not get distracted by the 16 messages and 103 emails waiting for them on their phone, find your number again, breakup a fight between two of the kids and then still not only remember but have the energy and the desire to call you. If that wasn’t bad enough, on their way to their appointment you have to make sure their GPS that speaks to them in the voice of Homer Simpson doesn’t accidentally take them to one of the practices of the sixteen other dentists they pass just to get to your office. To add insult to injury you even have to make sure they simply don’t get lost on Facebook before the appointment raising imaginary farm animals and simply not show. Getting a new customer or patient in our above example is damn difficult and we haven’t even talked about all the effort that goes in to the marketing or the expense that happens to make the phone ring in the first place.
The other often under estimated portion of this equation is cost to acquire a customer. This expense is one of if not the single largest expense most businesses have, but many business owners often don’t understand that and feel they are entitled to getting new customers with little or no investment. Let’s use a real life example of a big well known company, Netflix. In my research I found that Netflix spends $35.00 to get a new $8.00 per month streaming customer in the U.S. Which means it takes them 5 months before they have their $35.00 back, plus a little extra. My research showed the average Netflix client stays on for about 24 months. So this big company is willing to give up 5 months worth of gross sales just to get a new customer. Too many small companies don’t even want to lose money on the first transaction, let alone the first five transactions to get a new customer. It is worth mentioning that the above numbers don’t take into account Netflix’s cost of goods sold, if it did, my estimates of their profits per streaming subscriber put the break-even point closer to 14 months.
Most business owners can’t take 14 months to break-even and I am not asking that but if you own a restaurant, can you at least give away a free dinner for a new customer? What about a dental practice, is a free exam and x-ray worth a potential new patient?
One area I have always excelled at is that of customer retention. I have always said that because it is so expensive and so difficult to get new customers once you have found one that is willing to open their wallet and buy from you, you MUST jealously guard that customers from any internal or external force that would try to take them away from you. The single easiest way to keep the poachers at bay is to have a relationship with your customers. The key to the relationship is for your customers to think of you as their friend in the business. Once you become “the friend in the business”, have a realistic customer acquisition cost and stop under estimating how difficult it really is to acquire a new customer, you’ll see your sales soar.