Do you measure Customer Retention?
It is vital to your success!
A majority (80%) of small businesses fail in the first five years in business.
Unfortunately, the rest of the bad news is that the remaining 20% fail at a rate of 80% in the next five years. It is not necessary to be included in these statistics.
The Small Business Administration states most small businesses fail do to “under-capitalization” and “not enough business to sustain the business”.
Measuring retention is one of the most important activities you can take to avoid this disaster.
However, most small businesses never bother to measure how many customers buy from them year-after-year.
Because they don’t know the process.
Learning how to measure, understand, and do something about retaining customers is one of the most important steps you can take in protecting your business.
Measuring retention is knowing what “percentage” of your customer base purchase from your business year-after-year.
Hint: In most small businesses, retaining 80% of your customer base year-to-year is a reasonable goal.
How do you go about performing these calculations?
You don’t need to be a math wizard or a specialist in database management to accomplish this. You will see how DO-ABLE this is as you read further.
First, let’s look at the benefits of measuring retention
1. Typically, over a five year period, most small businesses lose approximately 50% of their customer base. In order to survive you must find a way to replace that income or perish.
One way to replace that income is to find new customers to replace those who have left your business.
However, adding new customers to your customer base is the most expensive way to survive.
There is a better way!
It is much more valuable and less costly to find ways to sell to existing customers rather than to add new customers as the sole method of making your business grow.
Consider this, you have probably spend a considerable amount of time, energy and money building a relationship of “trust” with you current customers. You must “leverage” this relationship of trust to benefit your customers and your business.
It has been estimated that it costs 5 to 14 times the amount to add a new customer as it is to sell to an existing customer.
Most small businesses DO NOT have the resources to sustain that type of activity.
Why do customers decide to leave a business?
2. Here is some enlightening information about why customers stop doing business with a company:
- 5% of customers leave a business because they have moved out of the area
- 5% leave because of changing their buying habits
- 10% leave because they prefer the competition
- 12% leave because they did not like the service the business provided
- 68% of customer leave because they believed they were treated with indifference or have felt unappreciated.
68% of customers believe they were treated with “indifference” or have felt “unappreciated”!
How can that happen?
Think about your own personal situation. If you become a customer of a business that ignores you after you have made a purchase how do you react?
On the contrary…
When a business “covers-you-up” with attention and expresses their appreciation following a purchase do you continue to do business with that company?
Of Course you do!
Here are some important questions to consider.
After a customer purchases from your business how soon should you contact them with a telephone call, post-card, email, letter to say “Thank You”?
Do you have a standard practice in your business to “follow-up” on a recent purchase?
Retaining a customer is nothing more than finding ways to meet and exceed the customer’s expectations. And…it is much easier to do that than to continuously find new customers (more on that topic later).
What is the “Financial Impact” of customer retention?
3. If you are able to determine the percentage of customers that buy from you, year-after-year, you will be able to specifically measure the “financial” impact of improving customer retention.
Here is a remarkable fact:
For every 5% improvement in retention you can expect a 25% to 80% improvement (or more) in the profitability of your business.
4. Since a majority of small businesses never measure customer retention you will be creating a significant advantage over your competition by doing so.
It is like having a road-map to improved profitability. Once you know where you stand you will be able to make significant changes to improve it.
With a little effort and following the process of measuring customer retention you will be light-years ahead of your competition.