Customer Retention: The greatest opportunity to increase profitability in a recession

“The customer is the most important part of the production line”
– W. EDWARDS DEMING

In this newsletter, we will be talking about probably the biggest opportunity to increase your company’s value in a recession, or in any market, for that matter.

What is CRM? Most of you know that it stands for Customer Relationship Management.

CRM in its truest form has nothing to do with technology. Putting on a football helmet will not make you a football player. Buying a lot of books will not make you smart. Similarly, simply buying the latest technology will not make you money.

CRM is a mindset. It is the implementation of customer centric business strategies that are intended to make the customer feel like they are your first priority. Implementing these strategies will most liklely require the proper technology as an enabler to successfully deploy and implement the new systems and processes that will lead to higher customer retention in your organization.

If relationships with your customers are well managed, then, your customers will be happy. Right?

But why is this important? The simple thought goes:

If a customer is happy, they will remain a customer. If they remain a customer, they will spend more money over time. This is a basic idea that just about everyone can grasp.

But is that it? Is that all there is to it? Let’s look a little closer at the enormous value in properly managing relationships with your customers, which leads to higher customer retention.

1. NEW CUSTOMER ACQUISITION COSTS ARE HUGE

Depending on your industry, the costs associated with acquiring new customers can be huge. Marketing initiatives, salesperson’s salaries, collateral, and promotional materials, wining and dining the high profile potential clients are all costs associated with acquiring new customers. In addition, even once new customers decide to purchase your product and service, they may be responsible for the majority of your customer service or technical support calls. Industries vary, so it is hard to put a hard dollar amount on each of these, but if you were to add these costs up, I am sure you would be surprised by the results.

2. LONG TIME CUSTOMERS SPEND MORE MONEY THAN NEW ONES

Most new customers are already buying your product or service from someone else in some way, shape, or form. Something has inspired them to search for a new vendor. This may have been a referral, bad experience with their current vendor, or a compelling marketing promotion that you are running. In more cases than not, this search has led this new customer to purchase a “relatively small” initial purchase that will grow as you provide them with superior product quality, customer service, and technical support. Hopefully their business has grown over time, and this has increased their buying volume.

3. HAPPY CUSTOMERS REFER THEIR COLLEAGUES

A customer referral is the best way to acquire new leads. You have an ally in the marketplace evangelizing for you. Happy customers refer people who trust them, are like them, and who have already heard about the great products and customer service you offer. Customer referrals have a much higher percentage of close that your normal marketing driven lead. Higher customer retention generally leads to more referrals, which leads to more sales, which leads to more growth. In most industries, customer acquisition costs for referrals are significantly less than for a stranger off of the street. Not only do referrals increase your revenue, but generally they also reduce your acquisition costs, as well.

4. ORDER PROCESSING COSTS ARE HIGHER FOR NEW CUSTOMERS

With extra time being spent to educate new customers about your order process, credit checks and verification, new account setups, and other steps that need to be taken, it takes longer in almost any industry (and costs more money) to process orders from new customers instead of already existing customers. Your already existing customers know how things work with your company because they have done it before.

5. OLD CUSTOMERS PAY MORE FOR YOUR PRODUCTS

Most likely, many of your new customers have purchased your product because of some price break or promotion. They are taking advantage of a special marketing campaign that you have made available to “First Time Customers Only”. Existing customers generally pay the normal price, providing a higher margin on the products and services you provide.

According to the Harvard Business Review, an increase in customer retention by 5% could increase the value of your average customer by 25-100%.

That means that if you earn $50 million in profits each year, by increasing your customer retention rates by just 5%, you could increase your profit by $12-50 million.

1. Do you know what your company’s acquisition costs are?

2. Do you know what the rate of defection is among your current customers, and why they are defecting?

3. Do you have the systems in place to begin increasing your customer retention?
– Enabling your sales reps to sell more efficiently
– Enabling your customer service and technical support teams to quickly and proactively provide your customers with top notch service?

4. Do you know the top 5 reasons your customers call you after the sale?

5. Are you sharing critical information across your organization with all customer “touch point” departments?

6. What is the current financial impact to your company from your customers taking their business elsewhere?

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