According to the Harvard Business School, increasing customer retention rates by 5 percent increases profits by 25 percent to 95 percent.
It is a proven fact that it is easier to grow your top line with your existing customer base than by acquiring new customers. The cost of sales is much lower and your margins are usually higher. It is interesting though, in that sometimes companies can be more excited about landing the next new account and not pay as much attention to the existing customer base.
Measuring and monitoring your customer retention as a KPI is an excellent way to avoid losing customers you want to maintain. We developed a Retention KPI to measure results, and a Client Health KPI as a Leading Indicator to monitor how we are doing. If we lose a customer, we have in depth discussions to understand why and make adjustments and avoid future losses.
Customers often leave because they are unhappy with your service or product, don't realize the full value of their investment, or do not feel appreciated for their business. They can also be drawn away by competitors who have a more compelling Brand Promise than yours.
Studies from the U.S. Small Business Administration and U.S. Chamber of Commerce have found that acquiring new customers can cost as much as five to seven times more than simply retaining existing customers.
Realizing that retention is important, let us look at some tips to improve it:
- Set clear customer expectations up front, so that each party knows what to expect, and then develop KPIs you can monitor to insure you deliver.
- Offer more value than your competition. I recently heard a successful business owner state that the best advice he ever received was to offer true value, and revenue and profits will follow. Look for ways to “WOW” your customers to keep them coming back. Vertical integration is also an excellent strategy to provide more value to existing customers.
- Build trust and develop shared values. Be sure to take time to understand your customer's business and goals and look for genuine ways that you can help them succeed. People do with business with those they like and trust. Ensure that you are aligned and doing business with customers that align with your core purpose.
- Build KPIs that measure customer service and retention. Analyze your retention and develop a baseline to work against. Creating indicators like Net Promoter Score, Time to Resolve Issues, Order Accuracy, On Time Shipments and Customer Health Index can ensure you are keeping your customers happy and loyal. Try to find leading indicators that provide you with the right information before issues surface.
- Become known as the expert in your industry and a trusted advisor. Position yourself as a resource so that customers rely on you for your knowledge and not just the product or service you provide. Look for opportunities to increase the number of monthly touches to deepen the relationship, provide value, and provide genuine unbiased advice.
- Go the extra mile for your customers. One of our core values is to "Go the second mile," and we are always looking for ways to do this. Solve problems quickly and surprise them with your service when you can. We have made special trips to visit with clients that need some extra attention to help train their team and sort out their plans when needed.
- Be easy to do business with. Evaluate your sales process and make sure it is easy and pleasant for your customers. Offer exceptional customer service and respond promptly so customers are not left hanging.
There are many other ways to improve your retention. I suggest giving these a try and let me know what other strategies you have used.
Good luck and grow with purpose, Alan
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