The notion that there is no linkage between customer retention and profitability is being proven false. There is a direct linkage between customer retention and profitability.
One survey found that a 5% increase in customer retention consistently resulted in a 25% to 100% increase in profits. These almost unbelievable results would suggest that there must be a powerful force, your emotional connection to your customer, which needs to be understood and effectively managed.
Customer retention is not only a cost effective and profitable strategy, but in today’s business world it’s necessary. This is especially true when you remember that 80% of your sales come from 20% of your customer and clients. With these statistics in mind, I am wondering why most marketing and sales campaigns are designed for the new customer.
Take for instance the wireless telephone companies; if you sign a new contract you are given a large rebate or even a free cellular telephone. If you are a current customer you have the privilege of paying full price. Can someone please explain that methodology to me. With this type of promotion are we not just pushing current customers and clients to seek services elsewhere when their contract ends?
Creating a new business model that focuses on customer loyalty and retention would show that there is, in fact, a linkage between all elements of a business system: your employees, customers, and investors—and the generation of profits. Providing customer value begins with a management philosophy that supports the cultivation of strong customer relationships and is implemented by having properly trained and motivated employees who know how to deliver value.
Research has shown that customers who have an emotional connection and feel valued will repeatedly be repeat customers as well as provide a strong referral base for new customers. Loyal customers repeatedly purchasing your product or service are what generate sustainable business growth and profit. However, your practices and processes that support loyal customer relationships must be in place first before you will begin to see a profitable impact. This model does not work in reverse, although many organizations seem to think the reverse is possible.
This new business model is important because it initiates a series of steps which cascades through the organization as follows:
So what can you do differently for your business? Perhaps a good place to start would be to find better ways to create and sustain a loyal customer base. While there will be the need for an investment, the advantages will be enormous to your customers, employees, and investors. Strictly from a financial perspective, increased revenue from improved service quality tends to be 10-20 times the costs associated with fixing the problem.
If you want more information or you are interested on increasing your customer retention ratios, please call [phone link=”true”], or you may also send me an e-mail at email@example.com.
Reference and excerpts taken with permission from Customer Loyalty published by Resource Associates Corporation, Mohnton, PA.