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The cost of acquiring new clients

2 weeks ago by Nicole Arnett Phillips

Ahead of our 31 August Auckland DA Workshop: ‘Keeping the pipeline filled: sales for creatives‘, our workshop facilitator – Sarah Ritchie – shares valuable intelligence on appreciating the real cost of new business development. Sarah has spent 25 years in design and advertising account management, which included 10 years running her own, successful graphic design business. These days Sarah works for 3rdeye Consulting and specialises in strengthening the client/agency relationship. She is also the author of the award-winning 2018 book ‘How to Wrestle an Octopus: an agency account manager’s guide to pretty much everything‘, and her new book ‘How to Tango with a Tiger: a marketer’s guide to working with creative communications agencies’ (publication date September 2019).

For more information visit www.am-insider.com

 

The cost of acquiring new clients

It’s a well-known fact that it will cost you less (money, time, effort) to maximise the revenue out of an existing client than to find a new client. They say that it can cost five times as much to attract a new client than it does to keep an existing one. Therefore, the first rule of running any design business is to work on retaining your clients and building loyal, long-term relationships to encourage client satisfaction and repeat business.

However, a wise studio owner or self-employed designer also knows that client loyalty can be tenuous, and there is no guarantee of repeat or regular business from any one client. Therefore, anyone with responsibility for ‘business development’ and ‘new business development (especially those who have to ‘eat what they kill’ or ‘keep the pipeline filled’) will understand the importance of having a client acquisition plan in place, and find the balance between acquisition and retention activities.

It’s no surprise that most designers hate the notion of ‘sales’ and selling. Along with invoicing, the process of acquiring new clients is probably a Creative’s least favourite task. A Creative’s new client acquisition plan will usually include one or more of the following tactics – all of which are removed from personal involvement and having to face potential rejection:

• Website content.
• Social media activity.
• Direct mail.
• SEO/PPC.
• Online and mobile advertising.
• Price comparison websites.

 

What a Creative’s typical acquisition plan (most likely) does NOT include is cold calling. The notion of picking up the phone and making contact with a stranger (who may reject their proposition) is enough to cause anyone to shake in their shoes. The irony in the situation is that cold calling will be the most effective tool in your new business development efforts; no other tactic will garner such immediate and pre-qualified results. Remember – no pain, no gain.

It’s important to remember that finding new, shiny clients – especially via cold calling – will come at a cost for you (in actual time) and your studio (in chargeable time). So, how much will the hunt for new clients cost you? Let’s do some calculations:

 

 

Increasing revenue from NEW business

Example: you aim to source 50% of your annual revenue target from new business.

• Take your annual target (let’s say it’s $200,000).
• Divide your target figure by your average sale value (e.g. $5,000). This gives you the number of sales you’ll need to make in a year to hit the target ($200,000 divided by $5,000 = 40 sales).
• Take the number of weeks you’ll work this year (e.g. 48 weeks or 240 days). This gives you the number of $5,000 sales you’ll need to make per week (40 divided by 48 = 0.83 sales).
• Determine what percentage of your sales you want to make from your existing client base (let’s say it’s 50% = 20 sales); and the percentage from cold calling new clients (50% = 20 sales).
• Estimate the average time you will spend per cold call to prospects (e.g. 5 minutes).
• Estimate the average number of calls required to get one prospect. Let’s say it’s 10 calls.
• Estimate the average number of prospects that you will need to call to make one sale. We’ll say 15 prospects.
• The number of cold calls you’ll need to make to get your 20 sales = 3,000 calls (20 sales x 15 prospects per sale x 10 calls per prospect).
• Determine the amount of time needed for those 3,000 calls by calculating ((3,000 calls x 5 minutes per call) divided by 60 minutes) = 250 hours per year.
• Convert that into a daily figure by dividing 250 hours by the number of working days per year (240 days) = just over one hour per day needs to be spent cold calling.

 

From existing client business 

Example: using the scenario above, repeat these calculations for getting 50% of your revenue target from existing clients.

• Estimate the average time you’ll spend per client contact (e.g. 5 minutes).
• Estimate the average number of client contacts (e.g. calls, emails) you’ll need for one new sale. Say it’s 10 contacts.
• The number of client contacts for 50% (or 20) sales is (10 contacts x 20 sales) = 200 contacts.
• The time required for the 200 client contacts ((200 contacts x 5 minutes per contact) divided by 60 minutes) = just over 16.5 hours per year.
• The daily time required for existing client contact (16.5 hours per year divided by 240 days) = 7 minutes per day.

 

What you can learn from these figures

• The total daily hours required to meet your $200,000 revenue target with 50% of revenue from existing clients and 50% from new clients = approximately 1 hour 10 minutes a day. If your estimates are correct and the time commitment sounds acceptable to you, you’ll know what you need to do to be on track every day of the year.
• For a busy Creative or studio owner, finding 1 hour or more every day for sales is a big ask. Your role would need to have a very clear focus on new business development to be able to commit that amount of time.
• If you work out how much time you spend in business development per year (in this example 266.5 hours) and multiply that by the rate at which you can charge out your time (say it was $140/hour), then this would equate to $37,310 worth of your time. You would need to recover this sum, PLUS the revenue target that you also need to hit.

 

Is cold calling worthwhile?

The short answer is “yes”. If your remit is to significantly increase your company‘s revenue, then a focus on sales (which will most likely include an element of cold calling) needs to become part of your tactical plan. You need to focus your efforts where the best investment of your time will be; the cost of acquisition of new clients; and the amount of return that you think you would get (per year) if you did secure a new client. Time is money, so all your efforts have to be worthwhile.

Remember, the alternative to not picking up the phone might be that you lose your job or your company goes out of business. Is that thought worth a little (potentially scary) cold calling? You betcha!

 

 

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August 31 @ 9:00 am – 1:00 pm

Auckland DA Workshop: Keeping the pipeline filled – sales for creatives