The cost of acquiring new clients
When the pressure is on to bring more revenue into your agency, you can look to one of two groups to find the extra business that you seek: your existing clients, or new clients.
The concept of new business development, and seeking out new, shiny clients to work with can seem like the better way to go. New clients can often seem like a treasure-trove of wealth beyond your wildest dreams, but is this actually the reality, and how much do new clients cost you (in time) and your agency (in chargeable time) to acquire? Let's do some calculations:
Getting 50% of your target revenue from NEW client 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 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.
Now repeat these calculations for getting 50% of your target revenue from EXISTING client business:
- Estimate the average time you'll spend per client contact (e.g. 5 minutes).
- Estimated 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 agency account manager, 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 to cold calling.
- It takes a LOT more time and effort to source new clients than it does to maximise revenue from existing clients.
- 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) this would equate to $37,310 worth of your time that you would need to recover, PLUS the revenue target that you also need to hit.
You need to focus your work 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.
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