Customer Retention: A Long Term Strategy for Business Growth
Customers, clients, audiences, and end users are the lifeblood of any and every business. Without them to purchase and validate the products and services you offer, there is no business! Even in the nonprofit sector, an organization exists to support beneficiaries.
As the pandemic persists, many companies have realized that selling virtually to current customers has been surprisingly easy. But acquiring new customers remains extremely difficult for some.
We took to social media to ask African women entrepreneurs about their number one customer challenge. Out of the 100 women business owners who responded, more than 70% said that attracting new customers was the biggest challenge.
We hear you. But we also challenge you to shift your perspective to first focus on keeping the customers that you already have and then seek to acquire new ones. Rinse and repeat. This two-part series will first look at strategies that SMEs can use to retain existing customers and next month, dive deeper into acquisition strategies.
Customer Acquisition vs Customer Retention
Many business owners are excited about the “the thrill of the chase” that comes with acquiring new customers, but don’t realize the cost. In fact, according to the Harvard Business Review, it is five to 25 times more expensive to acquire a new customer than to retain an existing one.
Despite this, business owners place a disproportionate focus on marketing and advertising in order to attract new customers. In doing so, they create what's called the leaky bucket syndrome, i.e., as fast as companies are bringing new customers in the front door, existing customers are running out the back door. Should you plug the leak or keep filling the bucket?
Customer acquisition is necessary to grow your business, but not at the expense of customer retention. The economist Theodore Levitt wrote, “The purpose of any business is to create and keep a customer”. If you are only focusing on acquiring new customers, then you are likely to find it difficult for your business to survive.
So what should you do? Here’s some valuable tips to consider:
Identify the Right Customers and Double the Effort to Retain Them!
Before you can find new customers and increase sales, you need to understand who your customer is. Successful businesses are obsessed with understanding their customers because it is easier to provide products and services that meet their customers’ needs.
Ask yourself these questions:
Do I have a written description of my customers?
How does my product or service fit into my customers' lives?
Do I understand all the points at which customers interact with my business?
Do those customer touchpoints need improvement?
Dr. Gordon Adomdza, is an Associate Professor of Entrepreneurship and Innovation, Ashesi University, Ghana, and teaches the importance of operating a customer-centric business. He stresses the importance of not selling anything without first understanding what the customer needs. “Small business owners need to understand the difference between what a customer wants versus what you want to sell. Paying attention to customer insights is crucial if you want to improve your products and services. Work on understanding the customer’s perspective and meet them there!”
Add Value Beyond the Product
From the get-go, small-business owners are operating in insanely competitive markets. It’s a tough job to stand out from the crowd but there are still a number of innovative ways to create value for customers beyond products and services.
Make them an insider: For example, give exclusive access so that valued customers get ‘sneak peaks' of your company’s new products and provide feedback.
Improve your customer service: Businesses with high levels of customer service have loyal customers who come back again and again. A Gartner report showed that when a customer experienced a high level of customer service, there was an 82% probability that they would stay with the same company.
Send them a company newsletter: It is a simple and cost-effective way of staying connected, keeping customers informed about the company’s latest activities and building trust with your brand.
Recognise the Potential Lifetime Value of an Existing Customer
Sixty-five percent of a company’s business comes from an existing customer base and one of the best ways to invest in customer retention is understanding how valuable their relationship is to your company. A key business metric that is often overlooked; Customer Lifetime Value (CLV) is calculated to find out how much money a customer will bring to your brand throughout their entire time as a paying customer. You definitely want repeat business and you want them to stay with you for longer!
Armed with CLV information, a business owner can determine what keeps customers coming back and find ways to invest in and incentivize their loyalty which is a more profitable path to revenue. According to Harvard Business Review a 5% increase in customer retention strategies can increase your average profit per customer by 25-95%.
Where you find your customers and how long they decide to stay will depend on the nature of your business and how you treat them once they decide to make a purchase or sign up for your services. Take this final piece of advice from Jeff Bezos of Amazon: “We see our customers as guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little better.”