The importance of customer retention for any organization is no surprise when you examine the numbers. Research over the years suggests that bringing on a new customer can be from 2-11 times the cost of maintaining an existing customer.  The majority of the research estimates attracting new business costs 4-6 times more than retaining a customer.

Research by Bain and Company provides insights into the financial value of customer retention:

  •  a 5% increase in retention yields profit increases of 25-100%
  • repeat customers spend, on average, 67% more,
  • that after 10 purchases a customer has referred up to seven people
  • 20% of a company’s customers account for 80% of its total revenue.

It is sound business sense to optimize the profitability from existing customers before putting your energy and limited precious resources in attracting new customers.

Some key steps to take when you focus on retention and loyalty:

Know your customer. Profile your best customers. Understand what has worked in the past. Tap into your organization’s and your partner’s experience. As a marketing professional, the key question to ask in this stage is, “What elements pulled a higher response and led to more conversions?? If you lack a comprehensive view of the customer, ask your customers directly. Conduct research.  Inform them how  their answers will benefit them.

Make your customers feel appreciated for their business. “Best” customers buy more frequently, spend more money (higher share of wallet), cost less per sale (operational efficiencies), and often refer others for new customer conversions. Start today by treating every customer like a best customer. Never miss an opportunity to send a thank you message. Try to find ways to connect with your best customers at least 10 times each year.

Reward your customers for being your customer. It’s human nature to respond to incentives. Your customers value time and money as much as you do. Offer one or both whenever possible.

Loyal customers are one of the few stable sources of revenue for many companies. Every company should be thinking about how to encourage customers to stay with them.

Define Your Customer Retention Process

You need three thing in your pursuit of customer retention.

  1. A pre-defined customer retention process.
  2. A customer segmentation process that looks beyond usage, revenue, size, etc.
  3. A way to integrate the voice of the customer.

Process:
A pre-defined process enables you to begin to build loyalty and advocacy from the start. A pre-defined process also helps your company examine new customers in terms of whether these customers are just looking for a deal and will be the first to fly when things improve or are truly the kinds of customers you want to keep for the long-haul.

Segmentation:
The right analysis will enable you to understand which customers are critical to your long-term success vs. those that are just cherry-pickers. You want to be able to differentiate for example between cherry-pickers or expensive to serve customers, from high-value or loyal customers. By having a segmentation schema you will be able to design appropriate retention programs and recognize which segments new customers belong to.

Integrate the Voice of the Customer:
A study sponsored by Satmetrix, conducted by the CMO Council study, entitled “Giving Customer Voice More Volume,reveals a number of surprises including that nearly two-thirds of companies do not have a formal Voice of Customer program in place. One of the key takeways of the study is how important it is for companies to measure, optimize and leverage customer experience to drive loyalty, improve brand value and increase business performance and growth.

Despite the value of voice of customer,  only 38 percent of companies gather customer insights from customer engagement situations. Listening is a critical skill. To integrate the voice of the customer you need to be able to:

  1. Aggregate in real-time the customer experience data across touch points and share this information across the organization
  2. Formalize a way to capture customer interactions to collect insights and intelligence or maximize up-sell and advocacy opportunities
  3. Establish processes and systems to track online word of mouth and drive customer advocacy
  4. Tie compensation to customer experience, loyalty and satisfaction gains

These competencies may require your organization to develop better customer listening skills, which may in turn mean you need to secure some external help to both capture the voice of the customer and to learn how to leverage the data. Invest in creating and executing a formal customer listening and communication plan. Studies have found that customers who receive targeted communication are 50% more likely to return/buy again.

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Measure Your Customer Retention Success

Keeping and growing the value of customers is essential to the health of every company.  Three common metrics to help you monitor your progress and success are customer satisfaction, customer referral rate, and share of wallet.  

Perform customer research. We live in dynamic times, an annual customer satisfaction survey may not be enough to keep a finger on the pulse of your customer base. Include questions in your research that help you answer:

  • What is your customer’s level of satisfaction?
  • What is the level of switchability among our customers?
  • Which customers consistently renew or repeat their purchase?
  • How well do we cross-sell and upsell to our customers? What is the profitability, cost of sales, sales cycle associated with cross-sell and upsell efforts?
  • What is our customer referral rate? How much of our customer base is willing to refer?
  • What is the revenue gains and costs savings of general opportunities vs. opportunities referred by existing customers?

Deepen Engagement to Improve Customer Retention

There are numerous ways to improve customer retention and pursue loyalty.  At a minimum:

  • Establish and outreach program.
  • Interact with customers as often as possible. Even if a customer isn’t buying now, find a way to stay on their radar screen.
  • Work to deepen and broaden the contacts within the customer base. Avoid relying on one primary contact.  
  • Cultivate as many contacts throughout the organization as possible. People and projects change. Stay on top of personnel changes.
  • Lastly, build customer retention into your Marketing and Sales processes.

Looking for more guidance? 

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