It’s the worst kept secret in the fitness industry: most people only stay with their personal trainer for six weeks. And 80% of people who join a gym in January will quit within five months once New Years resolutions have faded. This is an extreme example. But without a client retention strategy, businesses often get stuck in the endless cycle needing to find new clients and never establishing a strong base of existing clients.
While there’s a certain thrill in hunting for and acquiring new customers, keeping your existing customers will continually result in a greater return on investment. In fact, acquiring a new customer is up to 20 times more expensive than retaining an existing one. Research shows that most businesses need to retain customers for an average of 15 months to break even on the acquisition cost of each customer.
On the flip side, increasing customer retention rates by only 5% will deliver increased profits by an average of 60%.
It’s well known in business that building and working on customer relationships is vital. This is true for businesses in professional services, manufacturing and trades businesses. However in my experience as a business coach, far too many businesses are so focused on attracting new customers that they neglect their current and past customers.
That’s why the business owners I mentor know that a customer retention strategy is vital to achieving the big picture goals for their business. I should note that most of the business owners I coach and mentor are leading established businesses. They have progressed through the early stages of the business life cycle and are in the growth and maturity stage. These businesses have solid track records, so they have good databases of past and current clients.
Customer Retention vs. Customer Acquisition
I’m often asked in my role as a business coach what the difference is between customer retention and customer acquisition. Customer retention is the combination of activities to keeping customers ‘in the fold’. There are , increasing the basket size or number of repeat purchases and increasing the profitability of each existing customer
Customer acquisition is the process of ‘acquiring them’, reaching new potential customers, targeting them through marketing strategies and attracting their interest in the products/services you offer. Both customer acquisition and customer retention have important roles to play.
For both processes, understanding the audience you are marketing to is a crucial step not only to reach them, but to keep them. I coach my business clients to do this by identifying who their ideal customer is and why they need this particular product or service. Obviously, whether you should focus more on customer acquisition or retention is heavily influenced by the product/service your business provides and by where your business is in its life cycle. After you have acquired a new customer, you have to work hard to ensure your don’t lose them to a competitor.
Finding your baseline
One of the key metrics I use in coaching to understand how successful a company is at retaining customers is the customer retention rate. This is the percentage of customers who continue purchasing from you, in a particular period. The opposite metric we sometimes use in coaching is the customer churn rate – percentage of lost customers.
Business leaders who are interested in retention should seek to understand how many customers leave and the underlying reasons why they are ending their relationship with the business. Results will be a signal that their strategy is working well (when the churn rate goes down) or the strategy needs addressing (when the churn rate goes up). This can actually be a good gauge on the general health of the business.
The drawback of this metric is that it’s a lag indicator of customer behaviour. Lag indicators are like looking in the review mirror at what has already happened. In coaching, we use it to identify trends. Once we’ve spotted the trends, we use that intel as an opportunity to get ahead of losing customers by asking questions like:
- What are we doing as a company that’s causing customer turnover?
- How can we manage our customer relationships better to make sure it doesn’t happen?
A big mistake I often see when I start coaching a business is that a high churn rate is often the result of attracting the wrong kinds of customers. This is particularly evident in industries that promote price heavily up front; they attract price shoppers who often leave quickly if they see a lower price elsewhere. These deals may have helped attract new customers, but they’re typically high churn customers who don’t make another purchase if a heavy discount isn’t offered.
Pricing certainly has an important role to play.
Finding the right customers
Without a deeper understanding of how your best current customers are segmented, business can lack the focus needed to allocate resources efficiently. This can impede your ability to fully engage with valuable target segments and ultimately stall growth. There are 3 main approaches I coach business owners on to segment their client base:
- ‘Priori segmentation’ is the simplest approach. This method uses classifications such as industry, age, income or company size to create distinct groups of customers within a market;
- ‘Needs-based segmentation’ is based on customers’ expressed needs for a specific product/service;
- ‘Value-based segmentation’ differentiates customers by their economic value or profitability, grouping customers with the same value into individual segments that can be distinctly targeted.
Focussing on the value-based approach allows us to clearly define and target the best prospects (based on current knowledge of the market) quickly. The goal is to bring in and keep customers that value what you offer and those who are valuable to you.
Determine valuable customers by how they deliver on these metrics:
- Advocate for your business/brand
- Purchase higher margin products,
- Pay full price with minimal haggling for discounts,
- Place low numbers of larger orders rather than high numbers of smaller orders,
- Do not cancel or amend orders often,
- Pay on time or with minimal harassment for payment,
- Do not require extensive follow up servicing.
By spending less time on lower value opportunities and covering more ground canvassing your most successful segments and maintaining (or improving) current conversion rates, your business will ultimately see an increase in revenue.
Strategies for keeping the RIGHT customers
Once you have established who the right customers are, there are a range of strategies you can implement to ensure ongoing client retention. I coach my business clients to focus on strategies that use the strengths that are already in their business. We also consider which strategies are going to give the best bang for their buck. Let’s review the main strategies here:
Provide extraordinary customer service
It cannot be overstated how vital customer service is to retain your clients. Without a doubt, it’s the most critical part of running your business. Get to know your clients, listen to what they want and need and treat them with respect and you’ll be well on the way to building a long-term client base.
Develop your brand
Customers are often thrilled when the company they buy from is praised publicly. Developing and demonstrating expertise within your industry is a sure fire way to build customer interest and support. I encourage my coaching clients to publish articles in trade journals, nominate for industry awards and get noticed for community involvement as tactics for using this strategy.
Understand your client’s needs
While developing and differentiating your business is important, you need to place your customers at the centre of the process. In business coaching, we use market research to get valuable insights into the needs of clients. With that information, I coach business owners on how to respond appropriately. When consumers feel that their opinion matters and that the company they do business with cares about them, they are far more likely to remain committed to that company and to encourage others to do the same.
Set expectations and maintain communication
Lack of communication can cause a lot of problems. In order to avoid confusing or upsetting your customers, you can build and maintain trust by delivering more than you promise. It’s something I’ve said many times in my career as an experienced business coach: “Under promise, over deliver”. Keeping your customers in the loop and maintaining contact shows you care about each customer. In turn, that will foster a relationship that will keep customers warm.
With my coaching clients I often use customer surveys. These can be integrated into the customer experience by seeking feedback at periodic intervals. For example, at the time a product/service is delivered or before contract anniversaries. These reviews provide insight into customers’ experiences and expectations. We set a plan in coaching to monitoring and to maximise customer satisfaction over the longer term.
Embrace online feedback
While customer surveys are planned methods to collect insights, online reviews initiated by customers also provides your business with valuable insights. I encourage the businesses I coach to pay particular attention to how customers engage with their business across all digital channels. These include forums, comments on blog posts, replies to email newsletters.
Dig for more data
In my role as business coach, I advise my clients to consider the bigger picture. This means we seek to information from broader industry. I’ll ask my coaching clients these key questions:
- What are the market trend reports showing?
- Are there current gaps in your industry?
- How are your competitors performing?
- What are your competitors working on?
Sometimes these answers are easily obtained, other times we need to dig for more data. In coaching, we’ll set out a smart plan for how to get this intel and which sources to use.
Develop new ideas
As humans, we are wired to be attracted to newness. The same is true in business. Consider creating innovative ideas that will capture the interest of the customer base. I coach businesses to engage their clients in the process. The advantage of doing this is that is gives customers the sense that they are of your company’s inner circle. This especially true for customers who have been doing business with you for some time. Being involved in things like product development/testing further entrenches the relationship.
Search engine optimisation
Whilst SEO is primarily regarded as an acquisition tactic, it can also prove to be a worthy tool for retention. Ensuring your brand appears in short and long tail searches means that those who have interacted with you continue to have the incentive to further engage with your site.
Email Direct Marketing
Utilising EDMs is a fantastic way to retain customers. Through the segmentation methods I mentioned earleir, you can communicate directly with target different customer groups> This gives you the advantage of appealling to their interests based on their interactions with your business. Ensure your email lists are cleansed before commencing so that your emails are reaching customers who are willing to have interactions with you through this medium.
Use Social Media effectively
Social media platforms are fantastic tools for both acquisition and retention. These platforms are continually expanding to facilitate B2C and B2B interactions. As part of the growth strategies we work on in business coaching, we’ll create a socail media plan. This includes a content plan that is tailored to your followers and push specific incentives across social media platforms through targeted campaigns to encourage customers to continue interaction with your business.
Reply to your customers’ praise and thank them for using your business, a little thank you and recognition goes a long way! In equal measure, reply to your customers’ complaints and thank them for providing constructive feedback, most customer complaints can be dealt with off line, however the broader community can see that you meet criticism apologetically which often endears you to them – this is a crucial step that many businesses fail to harness.
The Wrap Up
If you want long term growth for your business, retaining existing customers is one of your best options. Not only does it cost less than acquiring new customers, it also gives your revenue stream a shot in the arm.
Having a clear idea of who wants to buy your product and what they need it for will help you differentiate your company as the best solution for their individual needs. I’ve seen the results in the businesses I coach time and again: increased customer satisfaction and resilience against competitors. The benefits also extend beyond your core offering, since any insights into your best customers will allow you to offer better customer support and other offerings that enhance your offerings and customer experience.
In parallel with improvements to your offering, focused marketing messages that are customised to each of your best segments will result in higher quality inbound interest in your business.
It doesn’t take a convoluted strategy that’s expensive or time consuming to keep customers coming back for more; but because strategy and execution go hand-in-hand, you need to deliver on a number of fronts. First and foremost, businesses that take an active interest in training employees to show more attention to customers by offering extraordinary customer service with focus on customer concerns will see above average customer retention.