The current economic climate is causing customers to be more selective about where and with which businesses they spend their money. As a result, many companies are losing customers at a rapid rate and “Improving the customer experience has risen to the board level.”
However, many companies focus so much on acquiring new customers that they not only fail to do what’s necessary to keep their existing customers, but also to take those existing relationships to a higher level.
Your Customers are Leaving. Do You Know Why?
The average business today loses between 10-30% of its customers annually. And U.S. companies lose 50% of their customers every five years. Customers leave for a variety of reasons. But many businesses can only guess or assume what those reasons are, mainly because they don’t attempt to gather that information or develop a formal strategy to retain customers until after they leave.
Chances are, if those businesses were to look, they would find several reasons for customer defections. And if customers have already left for those reasons, more customers may be close to leaving for the same or similar reasons.
The True Cost of Losing a Customer
What does losing customers cost you? One measure of lost customers is their lifetime value to the company. For example, if the average revenue per customer over the customer’s lifetime is $50,000 and you lose 10 customers, it could cost you as much as $500,000 in lost revenue.
Keep in mind that those numbers do not include:
• The substantial costs involved in trying to recruit and acquire new customers to replace lost customers (e.g. advertising, sales, marketing, printing, etc.)
• The amount of time that it takes for a customer to become profitable to a company (i.e. before that company is able to “recoup” the initial customer acquisition costs for that customer)
• Lost opportunities for customer referrals/recommendations
• Negative word-of mouth, especially with the advent of blogging and social networking, where people can now broadcast their points of view to thousands or millions of people
• The toll that losing customers takes on a company’s employees caused by layoffs and office closures due to lost revenues
The best opportunity to profitably grow your business is repeat customers. The longer it takes for a customer to become profitable for your business, the higher your retention rate needs to be!
Building Customer Relationships that Last and are More Profitable
Building relationships with customers that last and are more profitable starts with knowing three things:
1) Why your current customers do business and continue to do business with you
2) Which specific factors are causing customers to leave
3) Which company offerings and programs customers care about most, by priority
Nine Tips for Succeeding at Customer Retention
1. Find out what customers think, want and need.
Conduct a survey with existing customers to find out: Are customers unhappy? Are there any changes and/or additions that your company should be making to its products and services? As part of the survey, ask customers what they want and need, as well as which specific aspects of your business, products, and services they value most. In addition, conduct a separate survey with former customers to find out what specifically caused them to leave.
2. Continually collect and promote customer feedback.
Don’t wait until there is a problem to contact or follow up with customers. Instead, set up communication channels to encourage ongoing and sincere two-way communication with them, and then use those channels to actively solicit and collect their feedback.
A few examples of some potential customer communication channels include: a feedback link/feedback form on your company web site, an 800 number, focus groups, comment cards, in-person visits, emails, letters, kiosks, user forums, surveys, etc.
Provide customers a convenient way to continually express their concerns, report problems and/or deliver praise to your company. Encourage customers to provide feedback by making requests for customer feedback on your web site, in company brochures, in company correspondence to customers, etc. The more aware that customers are that your company wants and values their feedback, the more likely they will be to provide it.
3. Analyze customer feedback to gain valuable insights.
Once you’ve gathered feedback from your customers, take some time to analyze it to find out:
• The type of customer feedback and the percentage in each feedback category (complaints, suggestions, comments, concerns)
• The channel most used by customers to provide feedback (Web, phone, in-person, etc.)
• The underlying drivers of customer loyalty and engagement (i.e. What are the biggest reasons that your customers do business with you? How are they emotionally connected to your business?)
• The current strength and depth of customer loyalty and engagement
• The trends in customer feedback levels over time
• New revenue and growth opportunities for your business
4. Immediately address your customers’ concerns.
Remember that customers who registered a complaint, 54-70 % will buy again if their complaint is resolved.That figure goes up to 95% if the customer feels the complaint was resolved quickly.
Customers whose complaints are resolved satisfactorily tell an average of five people about their good treatment. Therefore, it’s important to act quickly in addressing and resolving customer concerns.
To make the most of your customer feedback, put together an action plan that focuses on addressing and resolving any areas that are causing your customers concern, as well as improving your existing customer relationships (i.e. by building on what’s working). In conjunction, establish standards of excellence and share best practices with others in your organization.
5. Take action and measure the results.
Many organizations collect customer feedback, but fall short when it comes to using and acting on that data. So, act! After all, the data that your company collects is only valuable if you use it! Then measure and monitor the impact of the changes that you make to your organization using customer feedback. Some of the areas that you may want to consider measuring include your customer retention rate, revenue per customer, customer referrals, customers saved due to feedback, etc. In conjunction with these efforts, set aside time to benchmark your company’s performance against industry leaders to gain a more realistic view of how your company is doing.
Let customers know whenever your company initiates change as a result of their suggestions or feedback, and what specific changes you made. Doing so will encourage future feedback and assist you in continuing to improve your business. Conversely, if you’re not able to use a customer’s suggestion, let them know that you heard their request and appreciate their feedback, and explain why you’re not able to use it.
6. Actively measure and monitor your customers’ loyalty and engagement.
Customers today are bombarded with more attractive offers all the time. If they see a better deal based on price, quality or service, they feel pressure to switch brands. To combat this, regularly (e.g. monthly or quarterly) measure and monitor your customers’ loyalty, satisfaction and engagement to identify changes in your unique loyalty drivers. Then use that information to make adjustments to your organization.
7. Create and nurture a company culture that embraces and is committed to using customer feedback.
Create a company culture that embraces and uses customer feedback by:
• Dedicating resources to understanding and acting on customer feedback, and establishing a formal customer follow-up process.
• Training all your employees on what specifically they can do to assist you in building a more loyal customer base.
• Retaining and engaging employees who provide positive experiences for your customers. As part of this effort, collect and analyze your employee feedback to identify and address employee-related issues.
• Asking employees what their biggest, most frequently occurring challenges are in trying to serve customers. Put together and implement action plans to address those issues.
• Setting up a customer-driven employee rewards program. Build an employee rewards program around the positive feedback that your company receives from customers (be sure to find out the specific ways in which your employees prefer to be rewarded—e.g. gift cards, certificates, etc.). Then, hold a monthly or quarterly meeting and publicly recognize employees for positive customer comments made about them. This will encourage even more positive employee behavior in interacting with your customers. During the meeting, also promote any great examples of how people in your organization used customer feedback to make tangible, positive and long-lasting changes to your business, and reward them accordingly.
• Establishing a formal “idea bank” to actively encourage employees to submit suggestions on ways that your company can improve the customer experience. Offer and give rewards for any ideas or suggestions that are used.
8. Keep asking, listening, analyzing and improving.
Customer needs, wants, concerns and issues are constantly changing. So, keep asking and listening to your customers’ feedback, and analyzing that feedback on an ongoing basis. By doing so, your business will be able to not only retain more customers, but continually tap into fresh, new customer opinions, preferences and attitudes, and create new products, services, and programs that are much more tailored to their needs.
Retaining customers is one of the most important—and most profitable—goals that a company can have. Companies that take the time to actively listen to their customers and gather, manage and analyze their feedback in real-time and use that feedback to improve their business will not only survive, but also thrive when it comes to attracting, retaining and competing for customers.
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