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This page was updated March 23, 2006
The Power of Leverage
by Tom Reilly ©Copyright 2000
You spend an incredible amount of time chasing new business. You finally land the account and what happens? You start this cycle all over again. On average, it takes seven calls to close a new prospect on a new idea but only three calls to close an existing customer on the same idea. It costs ten times more to land a new account than it does to serve an existing customer. So why do you continue to chase all this new stuff to the degree that you ignore existing business?
Because you’re told to. There is a national obsession with what I call Pipeline-itis. This is the pursuit of new accounts to the extent that you slight your existing customers. It reminds me of the acres of diamonds speech I heard years ago. It’s a story where a young adventurer explores new lands for wealth when in reality he had great wealth on his own land. It’s first cousin to the grass is always greener story.
Managers direct salespeople to open new accounts, constantly plant seeds, and pursue new opportunities. Why? Because they’re deathly afraid of losing the business they have; therefore, you need to have a lot in the wings. The irony is striking, isn’t it?
Many compensation packages are designed to reward salespeople for new business. Sales managers tell me, “We pay fifteen percent on new accounts and ten percent on repeat business.” So why do you think salespeople tend to ignore existing accounts in favor of chasing new ones?
Defensive selling is a big part of Value-Added Selling. It’s nailing shut the back door so that you don’t lose as much business out of the back door as you bring in new business through the front door. It’s treating your customers as if they were prospects . . . because they are—for the competition. It’s working as hard to keep the business as you did to get it.
Leverage is the principle of achieving a high ratio of outcome to input. It’s 150% return on a 100% investment. In defensive selling terms, this means increasing your business with existing customers. I believe that the average company with whom I work can increase sales in a given year by twenty percent, even if they did not bring on board one new account, if they only did a better job of selling to existing customers. They leverage their relationships.
They achieve this by increasing their account penetration—vertically and horizontally. Vertical account penetration is increasing the depth and breadth of what you sell to a given customer—expanding your mix. Ask yourself, “What else should and could I be selling to this customer?” Are you getting all of the residual business that normally goes with a product? Are there other things they buy that you are not selling them? The more levels at which you connect the more solid the relationship.
Horizontal account penetration is when you sell more locations of the same customer. Do they have more than one office? Are there branch locations? Are there other people in the account that you should call on?
You can leverage your relationships by spin-off referrals. Ask every existing customer this question, “Who else should I be talking with?” Leave it wide open and prepare to take notes. One salesperson went through our five-day seminar and called me a couple of weeks later to tell me that he had asked that question twenty times since the seminar and received eleven solid leads—three of which were probable sales. He had to quit asking the question because he couldn’t follow up on all the leads he was getting from his customers. Not a bad position to be in, is it?
Let’s go back to the original point. Why are you spending so much time chasing new customers when existing customers represent the acres of diamonds on your own land?
Listing of articles by Tom Reilly
Tom Reilly is president of Tom Reilly Training, a St. Louis based firm specializing in training salespeople and sales managers. He is author of ten books including: Simple Psychology, Value-Added Selling, Value Added Sales Management, Customer Service Is More Than a Department, Crush Price Objections, How to Sell and Manage in Tough Times and Tough Markets, and Get Out of the Wagon and Help Me Pull This Thing. For more information contact: Tom Reilly Training, 171 Chesterfield Industrial Boulevard, Chesterfield, MO 63005 (636) 537-3360 www.TomReillyTraining.com