Why customer retention matters

You know customer retention is important, you wouldn’t be here otherwise, reading this blog.

So the real question is: how much do you stand to gain by getting it right?

Let’s switch into metaphor mode.

The invitation

Someone at work invites you to a party. You’ve only spoken a couple of times, and you don’t really know anyone else who’s going, so you say you’ll think about it.

The next day, they ask you again – only this time they tell you they’re hiring a DJ for the night. Again, you say you’ll think about it.

On the third day, they promise great food and unlimited drinks. They seem really keen, so you eventually agree.

That’s customer acquisition in a nutshell. You put a lot of effort into building your guest list, and the party hasn’t even started yet.

The two parties

          1. The party can go one of two ways. Your colleague greets you when you arrive, but they don’t make much effort after that. You don’t know anyone else there. Worse still – the food’s just a tube of Pringles and the “unlimited drinks” are just a few beers. The “DJ” turns out to be a Spotify playlist on shuffle. In the end, you leave early. You swear you’ll never go to one of their parties again. You tell your friends what a rubbish time you had.
          2. A private limo picks you up from home and takes you to the party. There’s free champagne and a games console in the headrest. When you arrive, your colleague greets you and introduces you to the other guests (including Beyonce and the tall bloke from Pointless). There’s a real Italian chef making pizza from a kiln, a hot tub on the patio and a dozen waiters who offer to top up your drink whenever it’s getting low. The DJ plays all your favourite songs and at midnight, there are fireworks. In the end, you’re one of the last guests to leave. You spend the next few weeks raving about the party to anyone who’ll listen, despite wondering how your colleague managed to afford it all. You worry they’ve gone full-on Walter White, but ultimately decide that if you get another invitation, you won’t hesitate to say yes. Of course, you don’t need to spend a tonne of money to host a good party – we’ve all had great nights with nothing more than a shoestring budget and a game of Twister. So long as you can find a way to wow your guests, you’re on to a winner.

    The snowball effect

    Customer retention is simple: keep people happy, make them feel valued, and they’ll stick around. That means you can spend less time and money chasing after new customers.

    In fact, Frederick Reichheld – inventor of the Net Promoter Score (NPS) – says that reducing your churn levels by 5% could increase your profits by anything from 25–95%.

    Think of it like a snowball rolling down a mountain. The longer it rolls, the bigger it gets.

    Happy customers know and like what you do – that makes them easier to convert in the future. You might be surprised how easy.

    According to smallbiztrends, the probability of selling to existing customers is 60–70%, compared with just 5–20% of new prospects.

    And considering that general consensus says it’s five times more expensive to make a new sale than hold onto your existing customers – it might be worth shifting your focus a little.

    News travels fast

    When you like something, you tell your friends about it.

    From the great customer service at your new bank, to your colleague’s house party last weekend – we let people know about positive experiences.

    Just look at how recent startups like Monzo, Airbnb and Zappos are disrupting the market by exceeding our expectations when it comes to the services they provide.

    The results can be surprising – Monzo managed to convince hundreds of thousands of customers to deposit £100, just to join a queue to open an account. All they changed was the way they speak to customers – using human language, instead of buttoned-up bank talk.

    Loyal customers won’t just buy from you again, they’ll recommend you to the people they know. Word of mouth accounts for 13% of consumer purchases, so taking care of your customers can do more than reduce churn, it can generate a lot of free acquisition too.

    On the other hand – bad news travels faster than good. American Express found that on average, customers tell eight other people about good experiences and a whopping 21 about the bad.

    So treat your customers right and you could gain extra business – treat them badly and you might do more than lose them, you could scare away new customers too.

    Making the leap

    Switching loyalty should be a big leap. Just think about where you get your haircut. The chances are you go to the same place every time because you’re confident they’ll do a good job.

    Choosing a new hairdresser is a gamble. What if they’re not as good? What if your quick trim ends up looking more like a bowl cut? You’re stuck with the result for weeks.

    The problem is: that’s not how most customer relationships work. Even when they’ve made their choice, 24% of your customers will keep looking for an alternative for at least two more years.

    Customer retention is an ongoing challenge, not a quick fix. Loyalty isn’t something you can earn once and forget about – it’s hard won and easily lost.

    Have a strategy in place. Don’t try and win back customers after it’s too late. Make retention a part of your product from day one.

    Get it right and everyone will want an invitation to your party.

Author: Rob Barrie

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