Loyal customers are the lifeline of any small business. They are needed for current survival and long-term growth.
Acquisition vs. Retention
There is no exact number, but most sources consider the cost to acquire a new customer to be approximately 5 to 25 times the cost of retaining an existing customer depending on the study and the industry (the Internet is filled with articles and studies both old and new on this subject).
In addition to the increased cost of marketing and prospecting for new customers, it is also estimated that increasing customer retention by 5% can increase profits anywhere from 25-95% (again, depending on the study and industry), and the success rate of selling to an existing customer is 60-70% compared to the success rate of 5-20% of selling to a new customer.
Profit is with Existing Customers
But, let’s throw out all the above numbers since it is impossible to know for sure what is truly accurate. Whether the exact cost of acquiring a new customer is 5 times, 10 times, or 25 times more than the cost of retaining an existing customer, or whether profits can increase 25% or 75% depending on the amount of customer retention, or whether the success rate of selling to an existing customer is 60% versus 5% of selling to a new customer, one thing is probably certain. It is more costly to acquire new customers than to retain existing customers, and the success rate of selling to existing customers is higher than the success rate of selling to new customers.
Take your pick on the numbers but small businesses and SMEs need to keep in mind that it is worth the effort to retain existing customers. And this means, do not irritate loyal customers!
Little Things Matter
The little things that can irritate a customer and drive them to the competition are amazing. In a competitive business environment, every customer is important for today’s business and tomorrow’s future. The global pandemic, staff shortages, supply chain problems, and growing inflation tend to exasperate the current economic situation.
Management should review every aspect of how a business communicates and deals with customers analyzing feedback from both customers and employees who deal directly with customers. What is it that customers compliment the business about and what is it that irritates customers? This is the starting point.
Businesses should continue to emphasize what is positive and take immediate corrective action in areas receiving negative feedback. Strategies that highlight customer satisfaction and retention are cornerstones for profit and growth.
Put Words into Action
It is not enough, however, for a business to simply state that one of its goals is optimum customer retention. Company policy must dictate how customers are to be treated, and employees must be trained on customer service and how to deal with dissatisfied customers. Conversion of a new customer or a dissatisfied customer into a loyal customer should always be a priority of any business. This increases customer retention.
Assuming that it is significantly more expensive to market and acquire new customers than it is to retain existing customers, communication with
dissatisfied customers should include the following:
• When things go wrong, apologize.
• Be quick to listen and slow to speak.
• Sympathize and understand the customer’s situation.
• Make sure you understand the customer’s problem or concern.
• Make sure the customer understands what he or she purchased.
• Ask the customer what you can do to remedy the situation.
• Take the attitude that you’re there to help.
• Don’t be defensive, just let the customer rant and rave until worn out.
• Make a concession, if necessary, by offering a refund, discount, or something extra to appease the customer.
• Choose your words wisely whether in-person, on the phone, or via email.
• Thank the customer for coming to you and their feedback. They could have just bad-mouthed your business instead via social media.
• Handle the situation better than you think your competition would handle it.
• Respond quickly to a customer’s inquiry.
• Let the customer know how much his or her business is appreciated by ending the conversation or email on a pleasant note.
It is Worth the Effort
Rather than always trying to replace lost customers, a company priority should be customer retention, which contributes to establishing a solid business foundation. Marketing for new customers can then add to an already existing customer base allowing for continued business growth.
