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In our search for knowledge around customer retention – what it means, how to calculate it, and why it matters, we stumbled on this fundamental truth: new business is not everything. Yes, not only did we say it, we also believe it. As a small business, getting your first customers onboard is an exciting prospect and naturally, many business owners pour infinite resources into trying to attract new customers and keep that flow going. But as we’re about to show, keeping the customers you already have coming back to your store is super important.
Let’s start with a quote by award-winning author and business strategist, Fred Reichheld:
“In the current downturn, many companies are tightening belts. But too many are missing their biggest opportunity to keep costs down: building loyal relationships with customers and other stakeholders.”
Bain & Company (who, by the way, were the ones who invented the Net Promoter Score) conducted a study that showed that by increasing your retention rates as a small business by a mere 5%, you could increase your profit margin by up to 95%. This is because customers who have already had a positive experience with your brand and have become familiar with it are more likely to return, spend more, and try new products.
Getting a new customer on board is always going to cost you more than what it takes to retain an existing customer. In fact, it will cost you five times more. It’s a statement that can be backed up with statistics but it’s also a logical conclusion. Think about the amount of money you spend on social media, online display advertising, paid media and email marketing just to try and onboard a new customer. Unless you’re using a targeted approach that’s laser accurate, you’ll likely waste money on leads that were never going to convert in the first place. With a repeat customer, you already know that they like what you have to offer and that your product or service answers a fundamental need or want. So spend money on communicating with those customers who are already invested in you.
The customers you retain can become the best and most effective sources of new customers. True story. We have already explored the idea that word-of-mouth marketing is still the most powerful form of marketing, but here’s a reminder: According to a study conducted by Nielsen, 92% of consumers from around the globe report that they trust word-of-mouth recommendations (also referred to as “earned media”) above all other forms of advertising. If you thought word-of-mouth wasn’t as powerful as it once was in the good old days, think again. You don’t have to spend serious money on influencer marketing when you have a team of micro-influencers at your fingertips. “Who are they?” you ask. Well, your loyal customers of course. They’re more likely to provide feedback, engage with your brand, tag you on social media, leave public reviews on Google or Facebook, and spread the word about your brilliant service to their networks (millennials, we know you’ve got a particular flair for doing this). If you’re not leveraging this free publicity, man oh man are you missing out on something big.
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Disclaimer: This content has been written for informational purposes only. It should not be construed as legal or business advice.
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