Customer Retention Marketing
How a 5% increase customer retention rate can add between 23% and 82% to your bottom line

Customer Retention Marketing is a somewhat over complicated phrase for something pretty simple really. Direct marketer's have known all along that the easy money is found in your existing customer base.

It's for this reason that we all see very low cost products for sale in the national newspapers and niche magazines. Sometimes called self liquidating offers, there is probably zero profit in it for the business doing the advertising.

Why do they advertise a product that doesn't make a profit?

I know it sounds a bit crazy but it's not at all. What is happening is that they are using a mechanism to attract people to buy from them with a very good offer. Once someone has bought something they can then offer them other associated product's and services and this is where they make the real money.

It's between 5 and 15 times less expensive to sell to an existing customer than find a new customer. All the big businesses that have become household names know this and that's why they introduce membership cards, special customer VIP schemes and that's also why they keep on adding more and more products and services.

It's a reasonably low cost way for them to stay in touch and provided they deliver a great service people will keep coming back to them.

Smaller business can of course easily do this themselves provided they know what to do, how to do it, had the luxury of time and sufficient funds to set it up.

Talking of funds, a basic system can be set very cheaply and even an all singing all dancing system which includes al the bells and wiggles wouldn't cost an arm and a leg.

Perhaps the most difficult thing to grasp is the knowledge necessary to implement these strategies. Simple though they are, one needs to understand how the various parts fit together.

What should a business owner in a small to medium sized company consider as part of their customer retention marketing strategy?

I would recommend you start by measuring the Life Time Average value of your customers. You can work out this figure by; Looking at all your customers, calculate what they spend per invoice over their time as a customer with you. Then divide the total spent by the number of customers and you will get an average figure.

There are other figures that you should look at and one in particular is called the customer retention rate. What percentage of your customers leave or move away each year. You may be surprised that most customers leave a company because of indifference to them. They get courted by a competitor and jump ship.

Customer retention has more impact on profits than almost any other measure. Did you know that improving customer retention by 5% could increase profits by between 23% up to around 82%. Apart from joint ventures or strategic alliances it's one of the fastest and easiest things any business owner can implement and it has a massive benefit to the bottom line.

Beyond this, it's worth thinking about how a customer retention strategy could be further enhanced through referral systems and VIP customer strategies, something we shall talk about in the future.

by Steve Prior - 14th July 2009

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