24 Jul How big would your business be if you kept every customer you ever had?
Losing customers costs a brand in more ways than direct revenue.
- Sunk costs spent on acquisition that will never be recovered.
- Overall profits decrease for every lost customer
- Without retention, sustaining a business is nearly impossible.
Each of these costs is significant on its own, but when combined, their impact can be substantial. Across a wide range of industries, a 5 percent improvement in customer retention rates will yield a 25 to 100 percent increase in profits. (The Loyalty Effect, Frederick Reichheld).
If you are sceptical about the claim “5 percent improvement in retention equates to 25 to 100% increase in profits”, you may not know who Reichheld is, but you’ve certainly been exposed to his work. Reichheld is a best-selling author and business strategist best known for his work in the area of loyalty business models and loyalty marketing (you’re probably more familiar with his Net Promoter Score). Here’s the way Reichheld explains how it works:
- The typical business is running at some level of profit (hopefully).
- Each retained customer increases the overall profit of the business because the cost of keeping a customer is significantly lower than the cost of finding new customers
- In most businesses, customer acquisition is in the top three expenses in the budget (it may even be the number one cost). Any reduction in this cost flows directly to the bottom line.
By keeping more customers, and reducing the money spent on customer acquisition actual profits will increase.
Now ask yourself the following questions:
- How big would your business be if you kept every customer you ever had?
- If you never lost a customer, how much more money would you save?
- If you never lost a customer, how much more money would you keep as profit?
- If you never lost a customer, how much faster would your company grow
- What strategies are you actioning to keep your customers?