Too many customers?

Too many customers?

December 19, 2009 7:45 PM | By Iain Lovatt

Would anyone agree with this statement?

Could a business ever have too many customers?

What do we mean by too many?

For some time now I have been thinking the issue with UK businesses and the future is not having too few customers but having too many. Too many of the wrong sort and too few of the right sort in my view. Businesses have conducted economy of scale marketing programmes and reaped the reward they deserved. The majority of the customers they have acquired through blanket mailings, mass email campaigns and telephone marketing programmes are too small, not profitable, very expensive to service and distract companies from acquiring customers that are just simply better.

So why do marketing departments keep on trying to acquire all the customers they can no matter their lifetime value?

I blame the accountants and that essential measure introduced to prove marketing worked to the satisfaction of the finance department. ROI. What a disaster that has proven to be. If i can show the accountant that I can acquire a new customer that spends more on the first transaction than the cost of acquisition then I have been using the marketing budget to good effect and marketers have been rewarded with even more budget to get even more clients.

However no attention has been paid to the thorny issues of lifetime values and cost to serve. When these two issues are taken into account in excess of 30% of marketing budgets are used to acquire customers that are quite simply a waste of time and effort acquiring and servicing. They account for less than 10% of company revenue and they burn up to 40% of the companies time and resources to service.

So why do UK businesses pursue these customers?

Any one with any ideas please let me know as I can see no good reason why businesses pursue every opportunity to sign a new customers as the right thing to do.

3 Comments

Sheldon Nesdale (Marketing Consultant, NZ) said:

You are talking about a Paradigm shift. "Get more customers" has been drilled in forever, to change that to "Discard unprofitable customers" is a big ask.

December 20, 2009 11:54 PM

Julie Clare, MD, Clear Communications said:

I don't think it is necessarily a Paradigm shift, it is more a question of defining growth.

Too many companies measure growth by number of employees and turnover rather than by looking at the profitability of each employee and each customer.

Rather than win lots of new customers and increase the head count, many companies would be better off winning new profitable customers and letting go of less profitable existing customers, keeping the head count the same but increasing profitability and therefore the value of the company.

Even accountants and finance departments like the sound of that.

January 7, 2010 6:13 PM

ed said:

what about considering the fact that people are more educated than ever before and are therefore able to make their own choices through research and therefore dont NEED to be 'engaged' with. Lets face facts, this type of commerce is desperate and even more desperately clinging onto an economic system that is slowly but surely changing. Corporations and their marketing henchman are not resolving any of the issues we are now facing and will therefore become redundant...gather ye rosebuds while ye may...

March 23, 2010 4:27 PM