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Marketing IN or OUT… a Mathematical Formula

One of my friends asked a question. Is it better to spend more of your marketing dollars to market to NEW clients? Or is it better to spend more of your marketing dollars to market to EXISTING clients.

The question is IN or OUT. Meaning – do I spend more money marketing IN (old clients) vs. spending more OUT (new clients)

Here is a simple mathematical formula that shows why OUT is better.

For starters – this is by no means saying that you totally ignore your old clients. To be a success in business you need to take are of them regardless. All the marketing in the world is not going to save a revolving door of 10 clients gained while 10 goes out the door.

So for this formula – for simple math – I have it at .750 or 3/4 going to one side – and .250 going to other. Like you can’t ignore either side totally. It would be foolish to put 100 percent in marketing to New Clients and 0 to marketing to Old Client. The question here is where should the BULK of the money go. So this is how this mathematical formula works…

At issue is Attrition Rate. No matter what – you will not keep 100 percent of your clients 100 percent of the time. Good clients move. Good clients have a change of needs.

So here’s the math on why Marketing to NEW Clients is better.

The picture above also shows the formula.

NEW (Marketing OUT)   .750 x (N) = 10-4=6+(10-4=6) = 12

Spend .750 percent of your money to market to NEW clients to try to get 10 new clients… but you still have your 10 old clients that will naturally have a attrition rate of 4 (meaning you will lose 4 clients over time)… but you will keep 6 for net value of 12.

OLD (Marketing IN)   .750 x (O) = 10 – 2 = 8 +2 (8 > 2) = 10

Spend .750 of your money to market to OLD existing clients to try to slow attrition and get better word of mouth. So 10 existing clients slows the attrition HALF to 2. You will lose clients to attrition regardless. But this slows it to 2. But your 8 still earns you more referrals but at a rate of 1/4 for a value of 10.

So it’s 12 vs 10… Marketing .750 percent to find NEW Clients and .250 percent to retain OLD clients is better than the opposite.

 

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