3 Customer Retention Strategies and Why They Work for Small Businesses

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[5-minute read]

Attracting your first customers as a small business can be a difficult process. In fact, if you weigh up your return on investment against what you spend on attracting those first customers, you’ll realise that they cost the most. But once you’ve made that first sale, what then? Did you know that just a small increase in your customer retention rate can increase your profits significantly?

Think about the freelancer who works from your coffee shop every day and returns because the coffee is great and the service is even better. Think about the woman who goes from having her hair styled once a month, to visiting your salon every week because the job you do is that excellent. Your “regulars,” can become the backbone of your small business. Invest in them and they will invest in your business. In this article we explore some of the most effective strategies you can use to keep your customers coming back.

Harness the power of social proof

If you run in marketing or online business circles, you might have heard the term, “social proof,” being thrown around. Social proof is based on the notion of “normative social influence,” which suggests that the human need for companionship and familiarity makes us fairly open to being influenced. Studies continue to show that people will conform to certain social norms and practices to win the approval of their peers. When you hear by word of mouth that a product or service is highly rated, science suggests that you are more likely to show interest in that same product or service.

Think about the explosion of social media influencers. An entire industry, made up almost entirely of cool people labelling certain things as “must-haves” or “must-dos,” has sprung up overnight. Some of us follow these online gurus blindly. That’s the power of social proof.

As a small business owner, you can optimise the power of influence by really making testimonials, reviews and positive feedback work for you and your business. When you sell a product or service, ask for a review. If you’re not already doing so, you’re missing an opportunity to use the influencing ability of your existing customers, to attract new customers. From a customer retention point of view, what many small businesses neglect to do is show appreciation for the customers who give them a good rating, take the time to write a review or even tag you on social media. If a customer shows their appreciation for your business, show them yours in return. Doing so will open up a two-way stream of communication, making selling less one-sided and “pitchy.” Invest time into opening up conversations by showing appreciation for people who have chosen your product or service over those of your competitors – they’ll thank you by coming back.

Surprise them

“Surprise and delight,” is another expression in the marketing world. It’s a strategy that some brands have used with great success. For example, one company included handwritten notes to every customer who shopped their products online. And here’s the clincher – large companies simply don’t have the time or resources to give their customer individualized attention. But you, as a small business, can. Use your size to your advantage and demonstrate that customers are more than numbers online or feet through the door.

Here’s another idea: instead of having a sales representative or assistant respond to queries, complaints and comments, respond yourself, as the small business owner. Take your customer service strategy away from the, “mass responder: we’ll get to you when we get to you,” approach and take the time to represent your brand and its values. No one’s expecting it, so when they receive a response from a CEO or business owner, guess what? Surprise and delight.

Also, what about surprise gifts? Birthdays, anniversaries or special days on the calendar are leveraged by so many brands as ways to get their customers to come back. Think about how many times you received a birthday voucher or a reminder email about a relative’s special day. We’ve all been there and done that. But what about randomly selecting 5-10 customers and sending them a surprise, no-strings-attached voucher, product sample or an invitation to an exclusive sale? When the world around you is centering their campaigns around calendar events, you can be inventive and maximise the potential of surprise to keep customers coming back on days they would not usually shop.

Measure, measure, measure

Do you know what your current customer retention rate is? If not, why not? Customer retention is one of the most important metrics you can leverage as a small business owner. Large companies rely on tools and software to calculate how many customers make repeat purchases. Once again, use your size as an advantage. As a small business owner you can work out your customer retention rate manually.

If you keep track of your customers, you can take the number of customers you have served by the end of a period, then subtract how many customers in that period were new. Then, divide the result by the number of customers you served over that period and you should get a percentage.

Now we know what you’re thinking – what is a good retention rate? Well, it varies per industry. In the retail industry, retention rates are at around 63% because of the number of options available to customers. In the IT services industry, the rate increases to as high as 81% because customers who benefit from high levels of service with regards to IT goods and services, will generally remain with the same product and service provider, rather than risk losing considerable amounts of money on a provider they have never used before. The long and short of it is that as a small business owner, you should be employing tactics to increase your retention rate month on month so that you’re always retaining the customers you have, while acquiring new customers as your brand grows.

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