Scaling a Business Starts with Customer Retention. Part 1
To illustrate this point, imagine a bucket filled with water, representing your total revenue. Now, drill a small hole in the bottom of the bucket and watch as the water (or revenue) drains out. No matter how much fresh water you add to the bucket, the overall volume decreases steadily.
To effectively address customer retention, it's important to understand the growth process. When you fix a hole in your business strategy—akin to a hole in a bucket—you may need to transition to a larger bucket as you incorporate more fresh water, representing new customer revenue. This metaphor highlights the significance of growth and retention in business.
Customer retention should be perpetual rather than a last-minute rush before contract renewals. Maintaining continuous communication and consistently delivering value to your customers is essential. If these strategies are neglected, there is a considerable risk that your competitors will seize the opportunity to attract your clients.
Currently, customer choice has reached unprecedented levels. A recent report from Gartner indicates that 80% of future revenue for companies, is projected to derive from merely 20% of their existing customers. This statistic underscores the critical importance of enhancing customer retention strategies.
It is essential to prioritise customer retention over acquisition, as the challenges of acquiring new customers are well-documented and widely acknowledged.
In golfing terms, one could say that acquiring for "show" compared to retention for "dough," is equally appropriate.
A strong CRM system will display key performance indicators, communication frequency, payment statistics, and growth potential, to retain customers effectively. Here are some foundational principles for customer retention:
1. Regular feedback on your performance is important. Customer surveys, newsletters, and periodic phone calls to check in show that the customer is important to you. Use people to find out how things are, not bots!
2. Keep customers informed about new products, features, and other relevant updates to maintain fresh and engaging communication. Positive and negative feedback is valuable as it provides insight into your performance. Even when things are going well, it's essential to stay in touch; after all, how can customers evaluate your value if no one has reached out or visited? Remember, perception is reality.
3. Customer input through advisory boards for new product features can be invaluable. Customers use your product daily, and their feedback is crucial for product development and enhancement. The customer will also see this as valuable and having a stake in your company.
4. Make your company easy to do business with. Simplify transactions, and ensure your website is intuitive and simple for contacting people—set KPIs for customer interactions and response times regarding information requests. Strive to be first when possible.
5. Promote a customer-first attitude throughout the company, ensuring that everyone interacting with customers, even in a minor way, is trained to encourage repeat business and foster loyalty. Additionally, establish response times for answering calls, whether related to sales or complaints, as all interactions are important.
6. All customers should be considered potential references if they are managed effectively. It is essential to assist them in promoting your business by encouraging positive word-of-mouth, written testimonials, articles, and social media posts. This will enhance public awareness of your company and foster a sense of pride among your customers regarding their association with your business.
7. Value sharing refers to having common interests that can facilitate conversation. This can involve supporting a shared charity or focusing on environmental sustainability, which may be highlighted in an organisation’s annual report. Identifying mutual interests helps build relationships and provides a reason to communicate.
8. Demonstrate flexibility in your approach. Customers may often present demanding requests; however, exhibiting adaptability conveys your attentiveness and willingness to adjust. This may involve engaging in negotiations, so it is imperative to possess the necessary skills to facilitate a mutually beneficial agreement. If concessions are made, ensure that reciprocity is achieved, thereby securing an advantage for both parties.
9. Evaluate which industries are likely to yield better success for you and explain why. This may be due to your products and services aligning more closely with certain sectors or because your value proposition resonates more with specific customer groups. Encourage these customers to communicate with each other to gain insights on why your offerings fit their needs better.
10. Analysing market statistics for various sectors is crucial for any business looking to optimise its strategy and improve customer retention. Metrics like average transaction value, percentage of repeat business, profitability, and average payment cycle provide valuable insights that can help make informed decisions about where to focus your efforts. Market statistics help you make informed business decisions. By aligning your offerings with the needs of your target market, you can improve customer retention and boost profitability.
11. Specialising in a Particular Industry. If your analysis indicates a sector with high profitability, a strong repeat business rate, and a favourable average transaction value, consider specialising in that industry. Specialisation allows you to tailor your offerings and messaging to the unique needs of that sector, potentially reducing competition and increasing your brand's relevance.
If the data shows that different industries have unique needs or behaviours, consider adjusting your products or marketing strategy. For instance, if healthcare customers value reliability and long-term value over price, emphasise these features in your messaging for that sector.
To retain customers and make it hard for them to switch to competitors, companies should implement long-term loyalty programs with initial incentives. It is vitally important to make customers feel valued throughout their contract, from inception to renewal. Regularly solicit feedback and incorporate a "never lose a customer" philosophy into company values to foster growth on solid foundations.
Mark
Stay tuned for Part 2 where I will discuss how to measure Customer retention.
