A Bird In The Hand

Company owner spends less time attracting new customers. Instead, he convinces existing customers to buy more.

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Instead of wooing new customers, you might do better persuading those you have to buy more

Treadmills are boring.

Oh, sure, they're not bad if there's 14 feet of snow on the ground, and you absolutely have to go jogging. And they do let you practice running up a 25% grade. But with the exception of a few mountain goats, Sisyphus, and the folks who spend their days tilting at windmills, we aren't sure why anyone would want to.

No, the fact is that no matter how you look at it treadmills are a waste of time. You run and run and run, and when you're done, you've gone absolutely nowhere.

And that's exactly where Robert Sidell felt he was going with California Cosmetics Inc. A fixture behind Hollywood's powder puff for 27 years -- the balding, stocky 51-year-old Californian did the makeup for "The Waltons," Body Heat, and E.T., among others -- Sidell started the company in 1985 to capitalize on the specialized skin cleaners and toners he had created for the stars. But by 1988, when people asked, "How's business?" he always answered, "I'm on a treadmill."

The problem was simple: Sidell felt he was spending all his days searching for new customers to keep California Cosmetics growing. And it was driving him nuts. "I'm as greedy as the next guy, but this had to stop."

At first blush, it is difficult to understand why he would complain. Sales at the mail-order company, by any measure, were phenomenal. In their first full year of operations, Sidell and his partner, Paula Levey, logged $1.6 million in revenues. By 1987 it was $4 million, and last year sales of their SilkSkin line of cosmetics came within an eyelash of $12 million.

And the only thing better than the sales were the profits. California Cosmetics made money from the start, with net margins hitting 12.5% last year.

Sure, the numbers were fine, Sidell says with a shrug, but at what cost? Keeping up the phenomenal growth meant he had to keep searching out new customers. His ad budget kept growing -- by last year it represented nearly 16% of sales -- and so did his product line. After all, the more items in your catalog -- and by late last year California Cosmetics was offering 21 -- the better your chance of having something someone would like.

But each new product meant more inventory. Adding inventory meant cash flow went down, while packaging costs and payroll went up. Not only did Sidell have to find bigger warehouses to hold the ever-increasing number of products, but he also needed to hire more people to fill orders. That in turn meant more data-entry people to take the orders, and more supervisors for both. And so it went, on down the line.

"It was ridiculous," Sidell says, sitting in his office in Chatsworth, Calif., near Los Angeles. "We had to get off the treadmill."

Here's how he did it. Instead of continuing to court new customers, Sidell decided to convince those he already had to send him more money.

The advantage to this marketing approach is simple. You don't have to spend money -- in Sidell's case, an average of $150,000 per product -- adding to your line. Instead, you concentrate on getting existing customers to buy more of the things they like and/or to buy products already in stock.

By dealing with existing customers, your margins should increase because you have eliminated -- or at least have greatly reduced -- the cost of finding new customers. Sidell is projecting that net margins for 1989 will climb 25%. And this strategy makes it easier to grow. Sidell's average customer spent about $30 last year. So it took 400,000 customers to produce 1988's $12 million in revenues. The goal for 1989 is to hit $16 million. If Sidell continued to do business as he did in the past, it would mean he'd need to find another 133,000 new customers. But if he can just get his existing customers to spend another $10 a head, he'll reach the $16 million without the costs and headaches associated with finding new customers.

Is it really possible to do business this way? Yep, says

(continued)

Sidell, who discovered by accident just how easy it could be.

Sidell's sales typically fall off in summer. And last summer, more out of idle curiosity than anything else, he had his service reps call 10 customers who hadn't ordered in a while to find out why. "Eight placed an order right there," says Sidell, still incredulous a year later. "They had meant to give us a call but had gotten busy. Or they had misplaced the catalog." (Unlike most direct-mail companies, whose brochures arrive as predictably as the full moon, California Cosmetics customers receive catalogs only with their orders.) "But as soon as someone asked them to buy, they did. You don't have to kick me in the head for too long for me to realize something. We were missing a golden opportunity."

As are thousands of other companies. In your quest for growth, it's easy to take old customers for granted.

Sidell was guilty of that. But the casual survey of those 10 customers convinced him there was a lot of money to be made by changing his ways. But how? He could send out catalogs more often, of course, but that wouldn't give customers the right feeling. He wanted to reward them for being loyal, not just hector them for more business. The question was, how to do it?

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