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3 Ways to Increase Revenue from Existing Customers of Your Small Business
Posted by Sylvia Lagerquist, CPA
If creating profit is the goal of any small business, then driving revenue is the fuel to achieve that goal. Generating new revenue through sales activity is the first priority of any business, and it is what allows you to not only create profit, but also maintain healthy cash flow, which is essential to your company’s day-to-day operation.
Despite this imperative, many small business owners tend to overlook highly valuable opportunities to increase revenue in their business — particularly revenue that can be generated from existing customers.
Research shows that the cost of acquiring a new customer is typically anywhere from five to fifteen times as much as the cost of generating new revenue from a current customer. In addition to the monetary cost, there is the time involved. Since current customers already know you and have done business with you, typically they can be enticed to make a new purchase decision much more quickly than new prospects.
When you put it all together, focusing on new revenue generation opportunities with existing accounts just makes sense. With that in mind, here are three key strategies you can use to drive new revenue with your existing customers.
1. Market to Existing Customers
In order to sell new products or services to your existing customers, you first have to know who they are and how to reach them. If you run a retail or other consumer-facing business, make sure you collect email addresses and other contact information from customers every time they shop by enticing them with offers and future discounts in return for offering contact details. If you manage a business-to-business concern, make sure to keep accurate records of your customer contacts — and keep in mind that the contact data in your accounting software is probably *not* an accurate record of who you want to reach out to for new sales activities.
Once you have the customer list in-hand, you need to use it by sending direct mailers, email communications (such as an e-newsletter and other special offer emails), and even text messages. Create special offers and preferred customer discounts on new offerings to encourage them to return and do business with you again. Even if many customers don’t take advantage of these offers, the fact is you’re reminding them that you exist and what you offer, which will generally increase repeat customer activity over time.
2. Create a Loyalty Program
Once you are regularly communicating with your customers, it’s time to give them a consistent benefit associated with their support. For a retail concern, this could take the form of a frequent-customer card that offers a discount after a certain amount has been spent or following a certain number of visits. For other businesses, it might work best as a page or section on your website that makes special offers on select products of services and is promoted only to customers who have a certain level of business activity with your firm.
One thing to keep in mind is that most small business owners under-communicate with their customers, and this applies to loyalty programs as well. Customers are busy people, and they need regular and frequent reminders if they are to act in response to your offers. That means that you need to let them know of their eligibility for your loyalty program more than once, and reach them through multiple channels (such as web, email, mobile, social media, etc.) to reiterate the benefits of participating.
3. Package Products or Services
Many small business owners have the opportunity to create unique solutions for their customers by creatively packaging products or services together into preconfigured packages. Once you’re communicating with customers and you have established a loyalty program for them, begin experimenting with different ways to combine or configure products and services. Doing so can increase the value of individual sales, and improve profit margins as well.
For example, suppose you run a pet products store. Your top-of-the-line dog food is twice as expensive to the customer as your entry-level line, and you make a larger profit margin on it as well, so you have a real incentive to encourage customers to make the switch. Consider bundling a bag of obedience treats with your high-end product for customers who purchase the more expensive product for the first time, to entice them to make the change.
Business-to-business companies can get into the act as well, primarily by offering retainer-based packages that eliminate common frustrations that clients face. For example, if you provide human resource and recruiting support services, consider offering a year-round retainer offering that promises to check and confirm that your client’s employment records are up-to-date and that they are in compliance with major federal and state employment laws. By doing so, you will gain steady work and a more reliable cash flow cycle as well, while also increasing business to boot.
[Bonus] 4. Ask for Referrals
This technically doesn’t involve generating new revenue from existing customers, but what it does involve is leveraging your existing customers to find new ones. Customers who receive regular communications, who are actively participating in a loyalty program, and who benefit from your unique approach to offering high-value packages of products and/or services are also ideal candidates for a referral program.
To create an effective referral program, you need to offer something to customers in return for a successful referral; thank them directly for participating; and bring extra value to the customer who was referred as well. Some small businesses will also hold customer appreciation events and specifically thank those customers who referred business as well. One true key to a successful referral program is effective tracking, since nothing upsets a loyal customer more than making a referral and then failing to receive credit for it. So, when creating your referral program, take extra care to create procedures and select software or other tools to support effective tracking.
These four strategies are proven approaches that every small business can use to effectively increase revenue through the power of those who know you best: your existing customers.
Image Credit: Manchester City Library (Flickr @ Creative Commons)
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