Archive for April 26th, 2012

Retaining Your Current Customers

April 26th, 2012

When focusing on growing your small business, acquiring new customers should probably be at the top of your list. And that would be the best possible approach for a startup company. But I would suggest that the most important thing for any established business is to keep their existing customers.

You have probably heard this before; it is far less expensive to retain old customers than to acquire new ones, but you should also ask yourself what is the point of acquiring more customers if you can’t hold onto your existing ones? Also, what is the cost to your brand of all of those defecting customers? Are you just replacing angry customers with ignorant ones?

In a world of increasing competition and ease of defection to other products and services, building and focusing on keeping your customers longer can be a significant way to grow your business. Realize that:

  • Businesses in many industries may lose up to 50% of their customers over a five year period.
  • Studies have shown it is 5 to 7 times more expensive to acquire a new customer than it is to retain a current customer.
  • As little as a 5% increase in customer retention can increase profits by 25 to 95%.

Unaware of these figures, many businesses still focus on acquiring new customers as their primary growth strategy rather than protecting and nurturing those they already have.

Why do customers leave?

 Before we can start keeping customers, we first have to try and understand why customers leave. Studies tell us that the main reasons customers leave, or stop doing business with a specific company are:

  • 1% die
  • 3% move to another area
  • 5% are influenced by friends or contacts to go elsewhere
  • 9% are lured away by your competition
  • 14% don’t stay because they are disappointed with your product or service
  • 68% leave because they perceive an indifferent attitude toward them

Furthermore, research also shows that there is a significant difference between the reasons that companies think customers leave and what their customers actually think. If these findings are true then they have huge implications for business. They suggest that loss of customers is not so much about how good your product or service is, or how competitive your industry is, but rather it’s more about how you are with your customers, and how much they believe you care about them.

The implications of this falls into a few areas that businesses need to focus on:

  • It’s not about you (the business), it’s about them (the customer)
  • Customer service/care involves everyone in your business not just your customer-service people
  • Your relationship with your customers. This may take some time, effort and a lot of trust in your front-line staff because everyone is different and technology and systems are not always the best way to solve a problem. Sometimes it’s about just being a bit more human, taking a bit more time and a longer view of the relationship you have with the customer.

Want to improve your retention of customers? Here are a few steps to help you get started:

Get to know your customers

This is not just about how long they have been a customer or how much money they spend. Get to know them, find out what they like, what they don’t like, ask for their opinion on how you could better serve them.

Segment your customer-base according to their similarities

Segmenting your customers into different groups will make this project easier and allow you to track retention progress in each group. Create a strategy to get to know each group of customers that focuses on their expectations. Since each group is different, it is reasonable to expect they will have different preferences.

Decide which customers are going to work for your business

This is where reality and tough choices kick in. Not all customers are going to be a good fit for your business so choose which customers will work and be very clear about which ones will not. If you can identify the customer that will be disappointed with your customer experience as it does not fit with their needs and you choose not to do business with them (in the nicest possible way), then you will have saved yourself a lot of time and energy and brand equity in the process. They’ll appreciate the honesty. Refer them onto someone who will be able to fill their needs and you’ll create an advocate for your business.

Use Customer Relationship Management software

You’re going to need to have a way of gathering and storing the information about your relationships with your customers. This is where Customer Relationship Management (CRM) technology can lend a hand. Talk to an expert about this but don’t be led by the technology. Let your customers lead.

Measuring your progress and success

Set targets, monitor and measure your progress. It’s the only way that you will know if you are improving. However, realize that this can take time and will depend on the nature of your business and current relationships with your customers.

The results of improving your retention

The process of creating a focus on customer retention is not easy, and it takes time. But when you put it all into place you will be pleased with the results. Listening, learning and paying attention will get a positive response from your customers, and that means more business for you. Once you establish a learning relationship with your customers, you can develop a partner-like relationship. And at that stage, you’ll be able to meet and exceed their expectations by anticipating their needs. The deeper the relationship and more complex their needs, the more they will appreciate your relationship with them and the less likely they will be to move their business elsewhere.

Customer loyalty has a direct impact on the market value of your business

It’s been said that the most valuable asset a company possesses is not its buildings, employees or intellectual property, but its customer list. And that’s certainly a defensible position to take. A true entrepreneur, stripped of his or her entire infrastructure, could conceivably rebuild from scratch with only a list of proven buyers.

Interestingly, anyone who may wish to acquire your business will assess your company’s market value by taking your customer list into account. Should you ever choose to sell your business, it will be easy to point to a well-maintained customer list and express customer loyalty as a considerable value.