Anyone who has ever taken a Business 101 class has heard the age-old wisdom that the best new customer is an existing customer. Statistics bear this out: A report by Forrester cites research that suggests it can cost five times more to wrangle a new customer than it does to simply keep an existing one. Perhaps most striking of all is that reducing customer churn by just five per cent can increase profitability by 25 to 125 per cent, according to Emmet C. Murphy and Mark A. Murphy in their book Leading on the Edge of Chaos.
What business leader wouldn’t like a 125 per cent increase in profits? Yet, research performed by Forbes Insight found that only 32 per cent of executives surveyed claimed that retaining customers was a priority for them. The disparity between the data that shows how profitable it can be to retain existing customers, and the fact that many business leaders ignore this may be the reason why so many companies see profits drop, even as they continually bring new customers into the fold.
Many business leaders would love to have an easy, inexpensive way to dramatically increase revenue. Well, that “magical business strategy” might have been under your nose the entire time. Here’s how you can retain more customers and watch your profits flourish.
Your product or service must work well, solve a major problem, and excite your customers. Only then can you do anything that will increase customer retention. Charles E. Gaudet, the founder of Predictable Profits, explains, “In essence, when you provide your customers with the greatest possible benefit and advantage, you become the natural choice for first-time and repeat business.”
He suggests asking, “What can I do today to provide my customers or clients with a greater advantage or benefit to get them closer to the ultimate result they are after?”
“Reactivating customers who already know you and your product is one of the easiest, quickest ways to increase your revenues,” agrees marketing firm Marketing Wizdom. Even if it’s been a while since a customer’s last interaction with your company, there’s no reason to give up. Think of a dormant customer as a rock that has rolled halfway up your sales hill. Rather than try to roll a brand new customer up the entire hill, why not save yourself the energy and start with the rocks in the middle? With a few gentle nudges, (in the forms of re-engagement emails, special promotions tailored to dormant customers, or friendly calls from salespeople), you may be able to spur that dormant customer to make another purchase or re-up their subscription.
It’s hard to retain your customers if you only offer a single product or a one-time service. Retaining customers means giving them a clear and intuitive path toward additional purchases that will enhance or continue the benefit of your primary products and services. This may mean adopting the “freemium” model: Giving a basic service or product away for a reduced price. Make sure this product provides such a great benefit that happy customers are willing to pay for the more advanced version of the product or service. You may also want to offer ongoing monthly memberships or ancillary products that make sense for the clients who need your primary product or service.
Make sure customers are aware of the offerings that will most benefit them. Consider sending follow-up emails alerting customers who purchased Product A that they may also love Product B. Send free samples, or offer one new service appointment for free to all clients who bought your existing services.
Everyone likes to feel special, your customers included, and it may take just one bad experience to send your customers packing. According to Corporate Research Forum, “Almost 70 per cent of the identifiable reasons why customers left typical companies had nothing to do with the product. The prevailing reason for switching was poor quality service.” And a review by American Express found that Americans will tell an average of 15 people about a good customer service experience, while they’ll tell 24 people about a bad experience.
Make great customer service a priority in your company. That may mean bulking up your customer service team and giving them more flexibility to surprise customers with discounts, refunds, or new products. Happy customers generate referrals and become some of your most loyal fans.
Pay attention to your analytics before and after you begin your customer retention campaign. There are some extremely important stats you should already know, such as the average cost to recruit each new customer, the average revenue each customer creates, and your churn rate. Great analytics can help you identify the areas in your sales funnel where customers drop out or fail to re-engage. You may realize, for example, that your customers receive limited follow-up after their initial purchase.
Use a CRM and analytics system to track all of your customers. With analytics, you can more easily keep everyone happy and engaged.
The writers over at Marketing Wizdom put it best, “Most businesses, ironically, invest an enormous amount of time, effort, and expense building that initial customer relationship. Then they let that relationship go unattended… only to have to spend another small fortune to replace that customer.”
If you are pouring time, money, and energy into attracting new customers, you could be ignoring the great profit potential right under your nose. Your current and past customers are a sleeping giant. With the right strategy, you can wake up and re-engage these customers and build long-lasting relationships that will result in more loyalty and referrals, greater stability, and soaring profits.