I thought I’d weigh in on this and point out- in part as a result of two experiences here in Ethiopia- what happens when we don’t mind what happens when we forget the CAC/Customer Retention and piss off the very people who will not only expand our markets (by reviewing and talking about them online, which can be murder if you fucked up, which one hotelier did) but absolutely torpedo that lifetime value. Because I most certainly won’t be back, nor will anyone in my sphere of influence.
Those negative reviews hurt. So not only did he lose my business (I moved to another place and left a glowing review), but potential customers will think very carefully about using his place. His recovery and future cost of acquisition are going to be brutal. These happen on both a macro and micro scale and they can be devastating.
Joshua, perhaps what frustrates me the most in the work I’ve done with smaller companies as they chase big huge corporations is that they focus solely on the size of the contract. In the process, they completely forget the bread and butter (their net 30 folks who pay the bills) and the value of those bread and butter folks. When they invest vast resources to chase an F500 client, the amount of time and sheer energy to bag that contract can not only take years but also take huge resources away from those regular, devoted, dedicated customers who keep us afloat. In five years you MIGHT get a big contract, and then within twelve months, your guy at X Corporation moves on, someone else comes in to his position and brings his own suppliers in. Boom. Five years lost, and not only that, if we have neglected our net 30 folks, the little guys, we’re bankrupt. Or if not, there’s likely a major bleedoff of those customers who moved to more attentive providers. On top of that many people don’t have a clue what it costs to service an F500 client, which many smaller companies can’t sustain. That would include using suppliers as their banks, hanging them out to dry for months on end. Imagine having to pay all your bills, all your payroll and all your suppliers while waiting for a massive corporation to get around to paying you. That’s why there’s an 80–20 rule. If more suppliers would dedicate most of their time to existing customers and only 20% chasing either new or bigger clients, they might survive longer.
I suspect you’re going to go into this elsewhere but the value of focusing on those who love us, who pay our bills, which may not be anywhere near as sexy as bagging that HUGE client, is in the ones who pay the mortgage, put our kids through college and keep us out of our parent’s basements.
I think the metrics may well have changed a lot but it used to be that the cost of acquiring a new customer vs reinforcing and expanding the spend of an existing one (Customer Retention) used to be about x 7. I have no clue what it is now. As I used to work with associations, I was always a little gobsmacked at how the membership folks spent 80–85% of their time on new members as opposed to ensuring that current membership was happy, satisfied and committed. Not surprisingly, when folks experience benign neglect, oops. Off they went. Getting them back after what they consider is a betrayal of their investment is really, really hard.
We love what’s sexy and brag worthy. And we forget who pays the bills and keeps us afloat. This is where CAC and Customer Retention can clash. We all too often pay our salespeople a lot more to bring in new clients than we do those who ensure our future by keeping the existing ones. I have to wonder what would happen to failure rates and profitability if owners paid an equally high salary to those folks- typically customer service people- who have a big chunk of the organization’s profitability in their hands.