Do you have a question about a small-business topic? Let our resident expert Chris Griffiths take a run at it. E-mail your questions to email@example.com. Confidentiality ensured.
Question: I have a five-year old manufacturing company selling consumer products in Canada and the U.S. through about 100 retail dealers.
Our sales and marketing resources are limited, and my team is torn between dedicating those resources to adding to our dealer base (we think we can add 400 more retail stores in the next three years) or working more closely with our existing dealers to get their volume where we know it can be (we believe that our existing dealers are operating at about 20 per cent of their potential).
Which is the best strategy?
Answer: Your situation is not unique. This is a challenge for many companies, regardless of their age or size. I am not comfortable with an ‘all or nothing’ approach. You need to invest in both strategies, but I’d put more emphasis in growing the business you have with existing dealers.
It’s widely held that it’s five to 10 times more effective to sell more to existing customers than it is to find new ones. If I interpret your growth opportunity correctly, you believe there is about a five times growth opportunity waiting for either approach. If that is indeed the case, getting the most out of your existing customers is not only cheaper, but the lead time will be shorter, allowing for better customer service, brand messaging and customer loyalty and attention.
Quintupling your dealer base sure sounds like an exciting growth opportunity, but it has its own share of dangers. First of all, think of the number of trade shows, cold calls, sale pitches and sales cycles you will need to navigate in order to land 400 new clients. Not only will you exasperate your existing team and budgets, but you’ll need more staff to handle the customer service, receivables and day-to-day management of customer base that size. You’ll probably need to reach out to 4,000 dealers over the next three years to land 400 good ones that will stick around and pay their bills on time. Then you’ll have to manage their performance and keep up product and corporate communications with them effectively.
Instead, you have 100 dealers who could be buying more, promoting more and championing your brand in a more meaningful way. I think I’d choose one hundred quality dealers over 500 questionable ones.
Now, let’s not pretend that you won’t lose some existing dealers from time to time; nor should we assume that you’ll never have to do another trade show or sales pitch. There will be attrition. Let your team add new dealers through the normal course of business, but get them to focus on growing the business with existing dealers. This is ideal and more cost effective.
What you may find is that as you invest in the dealers you have, their growth will build loyalty towards you. In turn, you may attract new dealers as a side effect of investing in your existing channel.
Customers pay attention to the vendors who pay attention to them. So spending more on your existing channel will encourage your dealers to stock a broader range of your products, become experts in your features and benefits and competitive advantages, champion your brand, and use your products as a more meaningful way to grow their businesses.
Focusing on your existing retail partners will also allow for a higher level of awareness and attention at the store level, which in turn will translate to better educated end users; a win-win for your products and your brand.
Therefore, while attaining new customers is not a process that should be ignored, I think you’ll get a widespread, multi-beneficial return on investment if you focus on paying more attention and offering more support to your existing retail partners. Good luck!
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.Report Typo/Error