In a world where your customers are spoilt for choice, loyalty matters. To keep your customers coming back for more, it’s important to build strong customer relationships. Not only do these connections help to increase repeat purchases, but they may also expand brand awareness.
When your customers trust you, they’re more likely to shop and engage with your business again. Building customer loyalty and retention all comes down to your customer relationship management strategy.
As you may have guessed by the name, customer retention refers to a business’s ability to retain its customers over time. A percentage-based metric that you can track periodically, customer retention measures how many customers are retained by the end of a certain timeframe.
Many small businesses consider customer retention a key performance indicator (KPI). This is because building loyal relationships with customers and other stakeholders helps small businesses to keep costs down and expand their reach via word-of-mouth. So, what are the core business benefits of customer retention?
Retaining customers can be more affordable than reaching new customers. Keeping existing customers happy, is about delivering great customer service to help improve ongoing customer satisfaction. Reaching new customers, on the other hand, often involves sales and marketing acquisition costs. These can outweigh investments made in managing customer relationships.
According to the Prescription for cutting costs report by management consulting firm Bain & Company, a 5% increase in customer retention may produce more than a 25% increase in profit. This is because return customers tend to buy more from a business over time. Customer retention programs, when done well, can have a proven return on investment.
The customers you retain tend to buy more products (and book more services) than new customers. Studies have also shown that retained customers spend more than newer customers. This level of loyalty can help your business make more sales, more often, and helps boost your brand reputation.
The longer customers shop and book with your business, the more likely they are to mention you to family and friends. This is what’s referred to as word-of-mouth marketing (WOM marketing). This is essentially free advertising triggered by positive customer experiences with your business.
At first glance, customer retention and loyalty seem similar, but there are differences worth noting when thinking about your customer relationship management.
Customer retention is about transforming customers who shop with you once into repeat customers. You can do this by continually keeping your existing customers engaged with your product or service.
Customer loyalty, however, is the process through which your customers become ambassadors of your product. So, while a retained customer may keep returning to your business, a loyal customer is someone who returns often while also referring others.
Learn more about how to improve customer experience and boost customer loyalty.
As a business owner, you're likely familiar with these terms. But, to make it clear:
Some businesses focus on starting new customer relationships, others prioritise loyalty to customers that have been with them for some time. Where you place your focus depends on your business goals, but many small and medium businesses in particular benefit from prioritising customer retention due to its proven return on investment (ROI).
According to Business Victoria, a customer service strategy helps you to keep your existing customers and to build new business via referrals. To keep customers with customer service excellence, consider regularly optimising the following key service activities:
Remember, your customer relationship management style has a direct influence on customer retention. So, no matter the size of your business, showing loyalty to customers will, in turn, help encourage them to remain loyal to you.
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