Sales people (Hunters) work hard to acquire new customers and in many cases invest months of their time to get that contract signed. The question is, was it worth the effort? And later on, is the customer worth keeping?
At face value, these questions may sound absurd, but there are times when a lead is not worth pursuing to begin with, and a customer ends up costing the company more profits that he/she is actually yielding.
It costs a lot of money to acquire a new customer. This cost varies and in some cases can reach excruciating numbers. The cost of acquiring a new customer is the equivalent to an “investment” which needs to yield reasonable profits. Assessing these costs – and comparing those to expected profits – is an important exercise a sales person must undertake before pursuing a given lead. When doing so, the sales person must figure in a number of factors: The cost of the total amount of time it will take to convert a lead into a customer, the cost of marketing, sales promotions, operational expenses, and equally important, the likelihood of whether he/she will succeed.
If a lead is dragging his/her feet, for example, and repeatedly asks for product presentations and meetings, the sales person may at an earlier stage decide that the cost of acquiring this customer is too high, and therefore should be dropped. In another scenario, the sales process is moving along swiftly, but the sales person knows that the lead has been historically loyal to a competitor and has no obvious reason to change the vendor. This would indicate that the lead is either phantom- shopping, or perhaps decided to add another service provider to the books just to keep the original one on his/her toes. The sales person is better off dropping the lead in either case, as he may 1) not get the contract, or 2) end up with very marginal business volume and profits. The key elements here are research, research, and research.
Let’s assume the lead looks very promising, requires a reasonable amount of time and effort to close the deal, and is genuinely looking for a new supplier. The sales man decides to follow the lead and successfully acquires a new customer who is now doing business with the company. Let’s also assume that the sales person kept meticulous time sheets, and with the help of finance determined that the total cost of acquiring this customer came out to JD2,000 (including sales calls, preparing presentations, delivering samples, travel and accommodation, marketing budget, sales promotions, overhead expenses, and those costs all over again for other leads that were previously pursued but with no success.)
The company now has a JD2,000 vested interest in this customer that it needs to recuperate plus profits over a reasonable amount of time. The input of finance becomes critical at this point, as the number crunchers need to produce periodic profit and loss statements not only for the company, divisions, products/services, but also for the customers it serves. Empowered with monthly or quarterly numbers, the sales department is now well positioned to determine which customers produce the desired profits and should therefore receive more attention and service, or which ones are costing the business money and need to be dropped. Another critical point to take into consideration is that poorly performing customers not only cost the company money, but also strain its resources which could instead be invested in profitable customers and hence generate more revenues and profits.
At the end, there is no one-way approach and each company must figure out its own strategy to make sure it not only has a lot of customers, but that the customers it serves are actually profitable ones. Options span from reducing the cost of customer acquisition (e.g. increasing the marketing budget for scalability and reduce the size of sales/business development teams), to prolonging customer loyalty (excellence in products/services, maintaining strong relationships with customers, etc.), to cross and upselling, which introduce the customer to more and/or new products/services. Your “Farmers” play an important role here! But in conclusion, not every lead is worth pursuing, and not every customer is worth keeping on the books.
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Pinnacle Business & Marketing Consulting is a results-driven boutique consulting firm that specializes in providing clients with practical and pragmatic solutions to their business and marketing challenges.
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