All customers aren’t created equal when it comes to their lifetime value: The one-and-done value of a customer can be measured in a single visit, but the long-term, loyal brand advocate’s value is higher. To increase profitability, small business owners need to focus on customer retention and customer lifetime value, or CLV.
Here’s why this matters: If most of your customers fit within the one-time shopper category, you will spend a lot of time and resources working to attract new customers. If repeat buyers are a significant portion of your customer base, your customer acquisition costs are generally far lower, based on their repeat purchase behavior.
As an added bonus, repeat customers may provide your small business with word-of-mouth referrals, both in person and via social media.
In our free eBook Keep Customers Coming Back for More, we cite research that found that increasing customer retention by as little as 5% can increase a company’s profitability by as much as 75%.
Increasing Customer Loyalty
McKinsey has been studying customer decision journeys since 2009. When they analyzed data covering the behavior of more than 125,000 consumers, they found that few consumer buying decisions are truly loyalty-based. Even they were surprised when the data revealed that, of the consumers studied, only 13% were true “loyalists” who were not open to competitor offers, leaving 87% who were actively shopping around.
Although the McKinsey analysis did find that 29% of those studied shopped around but ultimately did not switch (referred to as “vulnerable re-purchasers”), a clear majority — 58% — of consumers were classified as “switchers” who not only shopped around but also switched to a new brand.
Your small business likely has room to improve.
Increasing customer loyalty can also have a domino effect. Accenture found that 55% of U.S. consumers express their loyalty to a brand not only by making repeat purchases, but also by telling their friends, colleagues, and family members about brands and companies they love.
Improving Customer Retention
One of the first steps to improving your company’s retention rate is to gain a better understanding of your current customer base in terms of customer lifetime value (CLV). Download our free eBook to learn how to calculate CLV.
You can use this calculation to define the average lifetime value of your customer base overall and to see the difference in customer lifetime value for those who come in only rarely, who come in on a somewhat frequent basis, or who return on a regular basis and fit the category of “loyalists.”
Our free eBook is also going to give you tools to research your customers more effectively, so that you can discover what’s important to them and find ways to better meet their needs or uncover previously unknown customer wants, giving your company new areas of opportunity.
You can discover where you may be missing valuable feedback from within your organization, and use a formula for collecting customer data online and off, so you can get the most complete view of your customer base and identify the types of customers where you want to target your efforts.
Implementing New Strategies
Once you have collected and analyzed customer research, our eBook offers eight specific principles for improving your customer retention rate.
You’ll be able to decide which strategies could best help your organization create more “loyalists” among those who might be vulnerable to competitor offers and also strengthen your offers to those customers who do shop around.
You’ll also find real-world examples of companies that used the principles described to improve both customer retention and customer loyalty.
Download your free copy of Keep Customers Coming Back for More now — to get the insights you need to accurately assess customer lifetime value, and to uncover new strategies and tactics for building relationships that will help you retain your most important customers.