Well, the reality is bringing in more customers is not always the best route for increasing profits. Why is this? Well, here are 2 reasons:
The cost to acquire a new customer is 5 to 25 more expensive
than retaining an existing one. In fact, many businesses will lose money or break-even to get a new customer.
Harder to convert. According to Marketing Metrics Solutions, the probability of a sale to a new customer is only 5 to 20 percent; while the probability of a sale to an existing customer is between 60 to 70 percent
Now, if bringing in new customers is not the best solution to increase profits, then what is?
Reactivating Old Customers!
And, not only this, they refer more business if they’ve had a positive experience. Not only that, referred customers are more likely to buy, more profitable, buy for a longer period of time and more likely to refer customers
Now, remember this: Many times your customers stop buying for reasons other than becoming unhappy with your product or service.
The main reasons customers stop buying:
Life changes. They have moved, found a new job, gotten a divorce, passed away, etc. You’re no longer an option for them to buy from forces outside of your control.
Switched to a competitor.
Are unhappy with your product or service.
BUT…the #1 reason why customers stop buying from you:
Lack of contact by the company or salesman.
“Lack of contact by the company or salesman.”
You stopped following up with them. You stopped making new offers. You stopped checking in to learn their needs or problems.
The good news is these are all correctable.
O.K, back to the Animal Clinic.
The Animal Clinic has been ran by a single Veterinarian for 30 years.
The Animal Clinic dominated the area for decades. But revenues have been on the decline due to increased competition in the area from other Animal Hospitals.
When the Veterinarian came to me to help increase the revenue of their business, I started by doing an audit. A few things I noticed:
They had grown their business through referrals and word of mouth marketing. The only advertising they had run in the past had been in the yellow pages.
They were not making new offers. Of the 8,000 past customers, the only contact with them had been through generic appointment reminders. These were system generated postcard mailers to let them know their pet had not been in the past year for their checkup or vaccination.
ZERO online presence. (In fact, I had to set them up with a website and Facebook Page).
They had never collected email addresses – thus had no email marketing contact.
This narrowed down our possibilities of how we could get old customers to buy again.
Creating a website, Facebook Page and email marketing system would take 1-2 months. This ruled these option out.
Adding a systematic referral system would be very profitable but take a little longer to put in place and see results.
So, the first option I recommended was sending direct mail letters to past customers (who had not been in with their pet in the past two years). This way we could get customers to act fast and start seeing immediate profits.
And, of course, we would need to have a GREAT offer for their past customers to respond to and take action.
So, I began brainstorming possible offers:
Option 1: We could offer a % discount if they came in for their annual wellness checkup. (low appeal)
Option 2: We could offer a free one month supply of flea/tick pills ($20 value) if they came in for their annual wellness checkup. (a little better but not enough to get excited about)
Option 3: We could joint venture with another local business and give them a free product/service/experience as a bonus.
(Now we’re talking!)
What option did we choose?
So, let me explain more about using a joint venture
with another business to give away their product as a bonus.
Now, when a customer brings their pet in for an annual wellness checkup with the Veterinarian, the cost to the customer is $50.
The hard cost of the check-up to the Animal Clinic is almost nothing (little inventory or cost of good sold costs) other than the doctors time. This is like a chiropractor or dentist offering a back adjustment or teeth cleaning.
And, once they get them in for the appointment, they can up sell on them on other items (nail trim, vaccinations, pills, surgery, etc).
What we proposed is, reaching out to other local businesses. And, identifying products or services with a low-cost and high perceived or retail value. This would allow the Animal Clinic to give them as a free bonus.
In turn, we would pay them the hard cost of the product/service ONLY after the customer had used it.
Dinner for Two at Restaurant:
Hard Cost to Restaurant: $5-$10
Now, the restaurant bonus could have worked because many people value a free meal at a nice restaurant. However, we decided to find something more in line with our target customer and the needs of their pet.
Do you understand what I am saying? You do? Good. Let’s go on.
The next joint venture idea we came up with is to partner with a local Pet Grooming Company, and offer a free Dog/Cat Grooming + Bath.
Retail Value of Dog/Cat Grooming + Bath: $40
Hard Cost to Grooming Company: $10
Let’s take a look at why this might appeal to a Pet Grooming company:
You have to understand that many businesses are begging for customers. By accepting this joint venture deal, we are sending them new customers that they did not have to spend money on marketing to acquire.
Yes, they have to do the first grooming for a lower rate than normal. But if they give a customer a great experience then chances are they will have them as a customer for life.
Also, let’s take a look at why this would also be a great option for the Animal Clinic.
Revenue of Annual Wellness Checkup: $50
Cost Vet Clinic Pays to Grooming Company (Only When Bonus Claimed): $10
One more note. Adding a bonus offer like this will increase the conversion rate of the mailing (number of customers claiming offer divided by number or letters sent). AND – a high number of the bonuses will go unused – so chances are the Animal Clinic will never have to pay this out to the Grooming company!
Now, this sounds GREAT on paper…
But the hard part is convincing the grooming company on the deal.
When making a call like this to a prospective joint venture partner, it’s important to talk about what the deal will do for THEM:
New customers they wouldn’t have to get on their own
No marketing cost to acquire new customers.
Referred by trusted Animal Clinic
After the initial call and some follow-up, they decided to take us up on the offer.
We then started to test the offer on increments of 100 to our mailing list:
Customers Who Booked Appointment: 5
Revenue from Customers: $250
Potentially Payable to Grooming Company: ($50)
Up sells for Extra Services: $85
We then mailed the remaining 7,900 customers with the same offer.
- Current and Old Customers often greatest source of profit
- Many times they need following up or a new offer
- Start thinking about offers outside of current business that would be appealing to customers.
Comment below and let us know if you have any experience using joint ventures. Also, if you know anyone who could learn from this joint venture example, I would appreciate if you could forward this to them.