I had a conversation with an insurance salesman recently who told me that "Clients are a pain in the ass." He isn't interested in creating a relationship with his clients because he wants to be able to squeeze maximum profits from his clients and doesn't want to answer to them when they find out they're over-insured or that they've been overcharged. He puts all his marketing dollars into prospecting for new clients using cold calls and internet marketing.
It's all about the transaction, baby.
But what he's failing to realize is that his clients are where the money is. He could literally double his revenues while actually reducing his marketing costs if he valued the client relationship more than the transaction.
Want proof that creating client loyalty is paramount to success? Consider this:
- It costs 6 to 8 times more to sell something to a prospect than to sell the same service or product to a client;
- Companies with "loyal" repeat customers generate profits up to 60 percent higher than companies that focus on prospects;
- Repeat clients spend almost 35 percent more on new services or products than first-time clients;
- Repeat clients give referrals at a rate that is nearly 120 percent higher than prospects or first-time clients;
- Companies that have a loyal base of repeat clients are twice as likely to succeed as those that don't.
All of these are published statistics from credible sources. And yet, according to recent studies, more than 80 percent of marketing dollars are still spent on attracting new clients that companies don't have relationships with yet.
For large corporations, it may simply be easier to act transactionally. Consider the cell phone industry. According to a recent CBS news report, about 25 percent of cell phone users switched service providers in 2004. This year, it is expected to increase to 35 percent.
Consumer Report magazine found that customer satisfaction with cell phone services is much lower than for any other industry the magazine measures. Complaints about price and service are rampant, and I expect it is simply cheaper for cellular service companies to capture new customers than to fix problems like dropped calls, billing discrepancies, and spotty coverage.
Still, cell phone companies now spend more money on advertising than the beverage industry and the top service providers are doling out more than $1 billion a year each on advertising.
For professionals and small businesses, throwing money at marketing simply isn't the answer. Nor is devaluing your client base.
While businesses need to constantly attract new clients, the greatest attention still needs to be placed on cultivating, maintaining and building relationships with existing clients. It will generate more business from those clients, create a lifetime value from them, and lead to high-quality referrals that extend that value over a lifetime at far less cost than mass marketing ever could.
I believe that the first transaction you have with a client should be the beginning of the relationship, not the end. How about you?
Denise Kotula
P.S. Look for Relationship V. Transaction, Part II: Why Clients Leave and How to Get them to Stay.
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