There’s nothing like the threat of impending difficult economic conditions to set sales team on new offensives, firing on all cylinders as they hunt down new business with powerful promotions and other strategic campaigns. This is all very understandable. Panic sets in and every organization wants to make sure that they fire the first shots and take the most customers as the stakes become higher.The danger with focusing on attack, however, is that it potentially leaves your defenses compromised. While you may be bringing in new captives all the time, what’s to say those customers previously considered to be tightly tethered haven’t gradually loosened their ties, ready to make their escape when the opportunity presents itself?
Extensive research conducted over more than a decade raises more than a few concerns in the way sales people approach difficult market conditions, or indeed the market in general. Our figures show that a typical distribution company, turning over around £2 million, loses about £440,000 in sales to existing customers in any given year, representing business leakage of 22%.
This isn’t necessarily customer attrition, which might be easier to spot, but more the gradual defection of customers to other suppliers. This slippage may be so subtle that you’d be hard pushed to notice it. Say you’re servicing 1,500 customers; the loss in revenue could be less than £300 per customer each year – that’s under £6 a week!
It’s very true what they say – take care of the pennies and the pounds will take care of themselves. Reclaiming customer share to the tune of £440,000 a year might sound a sizable, resource-consuming challenge, but think of it in manageable proportions and the leakage becomes a trend any aware sales person is capable of reversing.
Misconceptions about new business
A big part of the problem lies in sales culture, which is geared strongly towards slapping sales people on the back for bringing in new clients and new deals, rather than protecting existing accounts or building incremental business with old customers.
In tough market conditions, this strategy could be potentially highly detrimental, especially if new clients are being lured by cut-price promotions, which eat into revenues and, more importantly, profits.
If sales people could only change their own mindsets, and focus on these easier wins, (which do more for the business, ultimately), the sales board could look very different.
Watching your back
When industry figures show average customer retention rates in the office products supply business to be in the 45% ballpark, and the average cost of attracting a new customer to be in the region of £800, it’s clear that sales people aren’t making best use of their time or their talents.
What this basically means is that, as rapidly as you’re snapping up your rivals’ customers, the chances are that your competitors, in turn, are nurturing and luring your own. Which means everyone is paying more to do less business. Nuts, isn’t it?!
So make this your goal in the next year: form a defensive strategy, know what your customers are up to (i.e. look beneath the surface, remembering that gradual defection may be masked by rogue, one-off sales of larger items), and then have a targeted campaign that brings ambivalent and tired customers fully back on board. If nothing else, your margins will be stronger than those persisting in putting new business first.