The Secret's Out

You've heard it before. It costs at least five times as much to get a new customer as it does to keep one you already have--or to reactivate an old one. Yet the majority of companies still spend a fortune chasing after new customers and concentrating on that first sale.

Add it up. You offer deep discounts to get new customers into your bakery. You create loss leaders to increase traffic in your minimart. You offer a duplicate item for just a penny or a dollar more. Or you start giving stuff away: free ice tongs to the adults and face painting for the kids. All this costs money, not to mention the expense of promoting it through advertising. And it's all done without an ounce of assurance that even one new customer is going to pledge allegiance to your business.

On the other hand, staying in touch with your satisfied customers and making them devotees costs you relatively little. The idea to keep in mind is that a happy customer is like a perennial in your garden: With proper care and feeding, you can usually count on it to bloom year after year. When a customer buys from you the first time, he or she is saying "I like you; you have my trust." This is an invitation not just for a sale, but for a relationship.

This article was originally published in the May 1998 print edition of Entrepreneur with the headline: The Secret's Out.