The past few weeks, FEI marketing whiz Marka has shared tips for effective postcard marketing. This week, Marka shows Zoot how increasing FEI’s share of customer can greatly improve the company’s bottom line. Remember, fire = print.
Marka walked into Zoot’s office to find him hanging up the phone in frustration.
“Another cold call that went nowhere,” Zoot grumbled. “We need more sales.”
“There may be excellent sales opportunities right in our backyard,” Marka said. “You can keep cold calling, but let’s also focus on increasing FEI’s ‘share of customer.’”
“Share of customer?” Zoot asked.
“Share of customer (SOC) is the portion of each customer’s fire budget that is currently being spent with us,” Marka explained. “For example, if Hercules of Hercules Motors bought $100,000 drachmas of fire-lighting services last month but we only got $20,000 drachmas, then our SOC is 20 percent ($20,000/$100,000 = 20 percent).”
Zoot nodded. “I know a few customers who might give us more fire business if I worked hard at it. But how much juice can really be squeezed from that grape?”
“A whole lot!” Marka exclaimed. “Think about it. Customers like Hercules already know you. It’s much easier selling repeat business because the hard job of qualifying the lead is already done.”
“Plus, what happens next month when we do $35,000 of drachmas with Hercules?” Marka asked. “Our SOC increases to 35 percent. That means a sales increase of 75 percent! And imagine the results if you could duplicate this performance across FEI’s client portfolio.”
“Why don’t you show me the results?” Zoot asked.
“With pleasure,” Marka said. “Let me demonstrate the real financial impact of a small SOC increase for FEI. We do about $10 million of business per year, right?”
“Yep,” Zoot agreed.
“And 80 percent comes from our top 20 customers,” Marka continued. “Let’s assume we command a 25-percent SOC on average with these top 20 and we work like crazy to strategically increase our average SOC to 30 percent over a business year.”
“We start by determining the total revenue in Drachmas commanded by FEI’s top 20 customers,” Marka explained as she started scribbling on the whiteboard.Total Revenue Commanded by FEI’s Top 20 Customers ($)$10 million x 80 percent= $8 million
“If our current top 20 customers representing $8 million of revenue give one quarter of their business—on average—to us, we have a 25-percent SOC,” Marka explained. “If our SOC were 100 percent, then our total business would be $32 million.”
“Great Zeus!” Zoot cried.
“Relax, Zoot,” Marka said. “The $32 million figure is only important for the next calculation. A 5 percent jump in SOC (from 25 to 30 percent) can be calculated using this equation.”
[Marka scribbled more on the whiteboard.]Incremental Revenue Growth ($)$32 million (at 100 percent SOC) x .05 (5 percent) = $1.6 million
“Now let’s add this $1.6 million to the original $8 million from our top 20 customers and add the remaining $2 million from the bottom 80 percent,” Marka said. “FEI now has $11.6mm in sales. This is an overall increase of 16 percent, all from concentrating on top customers with whom we’re already doing business. See the power of even a small increase in SOC?”
“I’m sold,” Zoot said. “Now, what can we do to increase our share-of-customer?”
“Glad you asked…” Marka said.Today’s FIRE! Point
Some of your best sales opportunities might be right in your backyard. Even a small share-of-customer increase among your top customers can lead to a significant jump in sales. And it’s much easier selling repeat business because the hard job of qualifying the lead is already doneFIRE! in Action: Cyl-Tec Uses Direct Mail to Grow Sales Among Existing Customers
The industrial cylinder launched a direct mail program aimed at increasing awareness and recognition among existing clients. The campaign boosted sales with many existing customers. Next week: Marka gives Zoot some tips for improving share-of-customer.