Transitions director Shai VyakarnamIn the hunt to make their businesses as successful as possible, company owners often forget one of the most important sources of income and profit: existing customers.


It costs about seven times as much to get a customer than it does to keep one, so focus on who your customers are and how many of them come back to you.


If you spend the equivalent of £1,000 to make a sale to a new customer, which generates a £500 profit, you have made a profit on the deal, but a loss on the transaction as your costs haven’t been offset.


Your challenge is to make more sales to the same customer over the next few years, reducing the amount you’ve spent acquiring them.


Start by figuring out where and how you make the most sales or profit. You may have parts of your business that churn out a lot of low-profit sales, but the real profit might come from other areas, such as long-haul or cruise.


The next step is to analyse your pattern of sales. Where does 80% of your profit come from? I bet it is from just a handful of customers or customer categories.


Also, it is likely many of these customers know each other – perhaps you have expanded your business through word of mouth without even knowing it.


Once you’ve identified the customers you want and need, how do you keep them? First and foremost, you need to listen to them.


The profit that your business makes is effectively a reward for serving customers’ needs. That means you need to provide value. 


Where can you cut costs so that you can share the savings with the customer? Do you run advertising that fails to deliver? Are you doing certain things from habit?


Do you do things that your customers find irritating? By stopping these annoyances, and finding ways to raise the standards of service above your rivals’, you can create a real sense of value for money and build loyalty.


If you find that 80% of your profit comes from a dozen high-spending customers, think of ways to show them how important they are.


On a superficial level, you might want to send cards or flowers on clients’ birthdays. Alternatively, pamper them by creating a group of people who feel they belong in each other’s company.


You could even find out what they aspire to do for their holidays in the next few years and take the hassle out of their planning by suggesting ideas.


One of the best-known examples of this way of thinking came from the founders of Formula One motor racing. When thinking about spectators’ accommodation needs they discovered that many two and three-star hotels in race venues had restaurants and lounges.


But clients using these properties were often staying just one night, so they rarely used the facilities. Instead, customers wanted a good night’s sleep in a quiet room.


Hence the concept of a noise-proof, pre-fab room with a great bed – since copied by Travelodge and a host of other low-cost hotel chains.


The notion of value for money or finding the things that matter should ensure a better level of retention of customers – and therefore profit for you.


Shai Vyakarnam is director of management consultants Transitions, and director of the Centre for Entrepreneurial Learning at Cambridge University.


 


Case study: the 80/20 rule


Geraldine Sproston, Regent Travel, Staffordshire


Geraldine Sproston, Regent Travel, Staffordshire“I looked to see if 80% of our business came from 20% of our clients – and was surprised it was true.


“But what was really useful was being able to work out the profit of any booking I wanted to look at. From these two facts alone I now realise I have to look after that top 20% – without them my business is not viable.


“Another thing I have learnt is to walk away from a booking if it is not going to be profitable and let somebody else make nothing from it. Our time and staff are too valuable to waste money in that way.


“We want our top 20% to feel as important as they are. Recently, Regent Travel celebrated its 20th birthday and we wined and dined 200 of those clients as a thank you for their loyalty over the years.


“This was part-sponsored by operators, many of which our clients book with, so it did not cost us that much.


“However, it was greatly received by everyone who attended. Many of these clients are on charity committees, and in return for their business we support their charity events with prizes.


“This is much more valuable than newspaper advertising, which tries to attract new customers.”