The True Cost of Obtaining New Clients

One miscalculation that many business owners make involves the ease with which they will attract customers. This is called "field of dreams marketing".

The mindset is that developing strong marketing tactics to bring in new clients is the best path to growth and expansion. By growing their market share, they’re able to drive up sales and improve their overall results.

While this is a proven and undoubtedly successful business approach, it doesn’t come without its costs. Sometimes, these costs are so great that companies can do more for their bottom line by focusing on the clients they already have instead of spending their time and resources drumming up new business.

There are a variety of different costs that go into obtaining new clients, and they’re not always all used when making budgets or financial projections.

Advertising Costs

The most obvious expense of finding new clients is the money that you spend on advertising. Advertising costs can come in a range of forms, from listings in industry publications, to targeted Facebook ads. Many times, this is the only figure that novice business owners take into consideration when calculating the cost of new clients. In turn, this leads to inaccurate results that can have negative financial consequences.

Time Spent Establishing a Relationship

Another cost of obtaining new clients is the time spent establishing a relationship with them. This may be the salary you pay your sales and marketing employees, or even the costs of an online customer relationship management platform. Converting promising leads into customers doesn’t happen overnight, and the more effort you put into the process, the more costly it’s likely to be.

Personal Selling Expenses

If you have a sales professional managing your accounts, bringing in new clients may be costing even more if you’re paying extra commissions or periodic bonuses for new acquisitions. Although this type of incentives can be a powerful way to grow your sales numbers, offering bonuses on new clients gives your sales team less of an incentive to focus on more profitable current clients. Additionally, more clients also mean needing to hire more sales representatives to handle them. Unless your staff is earning purely commission, this will result in increased payroll costs.

Cost of Maintaining an Increasing Number of Accounts

When it comes to more accounts, there are more expenses than just for your sales agents. The costs of building a larger client list can affects areas like accounting and logistics. The problem here is that these employees won’t receive a majority, or all, of their salaries on commission, meaning the added cost of extra clients will be magnified when it comes to your labor budget.

For any company, it’s important to always be on the lookout for new clients. But, that company must also stay conscious of how much acquiring that new business is actually costing. In many instances, the high costs of taking on new clients can lead to profits much lower than originally planned thanks to poor planning or a mistaken understanding of the true costs. In these situations, it may instead make sense to focus on increasing the frequency and magnitude of your current client’s orders.

Business Tip:

Use the words they love to hear: Not all words are created equal. Certain persuasive words encourage customers to buy more than others, in particular: free, new, and instantly. When customers hear these words (and the promises they imply are backed up), they’ll enjoy their purchases more than they would have otherwise.