The Three Sources of Business Growth

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There are only three sources of growth for your business. The number of ways to get to those three sources are nearly infinite and at time it seems like the work required is infinite too.  But let’s start with the three sources first.

The three sources of business growth are:

  1. More customers
  2. Larger sales to existing customers
  3. More frequent sales to existing customers

Most businesses think about getting new customers but if we order these by effort from least to most effort something interesting appears. The list  flips order

  • More frequent sales to existing customers.
  • Larger sales to existing customers
  • More customers

I am not saying don’t get new customers. I would never say that because even the best current customers can stop being customers even if you do everything right. So many things can happen. They can move out of the area you serve, they can quit a business or job. Companies go out of business or get acquired. Sometimes a new competitor emerges and is a better fit for a customer. It happens. So you need to be continuing to grow the business with new customers.

However this does not mean that this is the only priority. Existing customers are usually more profitable to work with. The effort to sustain a customer relationship is a fraction of the effort of building a new one. It is also typically faster.

Sounds great in theory so let’s look at how that works out in the real world. A training company we worked with had launched a campaign to acquire new customers. They ran targeted PPC ads, placed sponsored content in several industry association newsletters and hosted numerous free introductory events. In the campaign ran for 3 months and they acquired 60 new customers. The cost of the 3 month campaign was $27,500 which works out to just over $450 per new customer. The were selling a $3000 training package so it was a decent investment.

New Customers

The math to calculate the cost to acquire new customers is simple but important.

  • Campaign Cost $27,500 / 60 = $458.33 per new customer
  • Acquisition cost per new customer $458.33
  • Cost of the training per customer $1,350
  • Profit for new customers is calculated from gross revenue, minus campaign cost, minus training costs
  • $3,000 – $458.33 – $1,350 = $1,191.67
  • In this case a new customer is worth $1,192
  • This is a roughly a 40% margin.

Existing Customers

So here is the exciting part.

When they offered the same training course to their existing list of prospects who had not taken that course they got 34 clients signed up. They reused the offer they had written for the new customers so to be fair we need to include that cost which was around $3,500. reaching out to the clients via email is essentially free so the total cost for those 34 was $3,500 which is $102.94. This is $355 less then acquiring a new customer. Again look at the full picture.

  • Campaign Costs 3,500 / 34 = 102.94
  • Acquisition cost per new customer 102.94
  • Training costs per customer 1,350
  • Revenue – campaign cost – training costs = profit
  • 3,000 -102.94 – 1,350 = 1,547.06
  • So a new customer is worth 1,547.06 which is a roughly a 52% margin.

It becomes clear that if we just focus on new customers we are really leaking money. If we focus on new and existing customers with equal effort then growth will come easier.

 

 

 

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