When it comes to growing their startups, many entrepreneurs are so focused on gaining new clients and customers that they fail to effectively address the need to retain those they already have. This is counterproductive considering that it’s far easier (about 50% easier according to Marketing Metrics) to sell to existing customers than to brand new prospects. All gung-ho and fresh out of the gate, startup entrepreneurs often find it more exciting to focus on customer addition, but ignoring customer attrition could eventually spell their downfall. In the spirit of Ben Franklin’s age-old idiom that “a bird in the hand is worth two in the bush”, here’s a look at five customer retention tips for entrepreneurs.
Never Underestimate the Value of Retention
For those who feel that customer retention plays a relatively minor role in helping a company grow a healthy bottom line, here are a few statistics you might be interested in. According to Bain and Co., a 5% increase in customer retention can increase a company’s profitability by 75%. And if those numbers don’t impress you, Gartner Group statistics tell us that 80% of your company’s future revenue will come from just 20% of your existing customers. Still not sold on customer retention? One final statistic provided by Lee Resource Inc. should give you plenty to think about: Attracting new customers will cost your company 5 times more than keeping an existing customer.
Implement an Effective Customer Retention Program
Many entrepreneurs believe that if they have a great product or service and provide outstanding customer experience, customer retention will naturally follow. And if this is your startup philosophy you would be right … but only for a while. Customers don’t owe you their loyalty. You have to earn it — continually. Having an effective customer retention program in place gives you the ability to identify, track, and custom promote to those customers who are most likely to become loyal, long-term sources of revenue. For service-oriented businesses a customer retention program from early on may not be necessary, as the quality of the service and support provided will determine the rate of retention. However, product-driven businesses, which depend heavily upon the same customer sales, will find customer retention programs invaluable.
Avoid Misreading Your Customers
Misunderstanding how customers think is a proven way to keep retention rates heading south. And it’s not just a problem with startups. According to statistics provided by Bain and Co. in the Harvard Management Update, 80% of companies surveyed said that they offer superior customer service, but only 8% of their customers agreed with them. Ouch. IBM’s customer relationship study of 2011 sheds more light on just how wrong companies can be about what their customers are thinking. When a number of companies were surveyed as to the reasons they thought their customers followed them on social sites, a majority of companies listed discounts and purchases among the least important reasons. But when the customers themselves were surveyed, they listed discounts and purchases as the major reasons for following a company on a social site. To avoid misreading customers, companies need to focus more on actual customer behavior, not on the predicted behavior of a certain demographic. This is where web-analytics comes in, as it provides data that shows you a customer’s past and present behavior, thereby allowing you to better predict their future behavior and strategize accordingly.
Engage Customers Through Social Media
Socializing with your customers can build retention if you do it correctly. The key is to dial down the corporate presence and give your customers a voice and a forum to connect with other customers, and then let them build the traffic. As you build your Facebook fans and twitter followers, stay engaged with them and establish “alerts” to keep you constantly informed and able to immediately comment on whatever is being said (both good and bad) about your company. As you identify those customers (followers) who are the most loyal, send them personalized “thank you” emails. Including incentives and coupon codes that they know are meant just for them. It will make them feel even more important and appreciated. You always want to take care of your social media savvy customers, as they can either be your most powerful advocates or your biggest PR nightmares.
Run Relevant Promotions
What was that statistic again? Oh yeah, 80% of your future revenue will come from 20% of your current customers. Promotions can be a very effective way of retaining customers by keeping them actively engaged with your brand. The key is to run relevant pander-free promotions that reward customers, make them feel good about doing business with your company, and encourage them to do more of the same. Loyalty programs are a good way to encourage and reward repeat business. Special discounts can also be effective, especially when they are tailored to those customers whose behaviors indicate signs of possible defection. On a more personal note, promotions such as sending promotional gifts, birthday cards, or staying in touch over the holidays with business Christmas cards are additional ways to express appreciation and potentially increase customer retention.
Reblogged this on PaperChain Blog.