“The team at McQuaig & Welk has been instrumental in helping our business move forward and grow successfully.”
Allen & Kim Tangeman, Owners First Choice Collision Center, Inc.
Keeping Satisfied and Profitable Customers
Typically when I ask clients what keeps them awake at night they answer the potential loss of a major customer. On further questioning I quite often find out that the business is dependent on a limited number of major customers.
Increasingly, businesses are realizing that their greatest asset is their customer base. Customers are the stakeholders who can build the income of the entity. Therefore, they are a great asset. What is being done to retain them?
Once you start thinking of your customers as an asset, it is then only logical to start thinking about what your business should be doing to keep them coming back for repeat purchases over the longer term.
The retention of customers and the frequency of their purchasing can very often determine whether you stay in business. If they maintain a good opinion of your product or service and provide that all-important inexpensive word of mouth advertising, suddenly you can find that sales figures are increasing and profits most likely will increase as well.
With customers and their retention being so important, managers and business owners need to understand the value that customers see in the product or service the business has to offer. The next step is to leverage that value over time in order to maintain and enhance profitability.
In many businesses repeat purchases produce as much as 90 percent of profit. Clearly managers and marketing specialists should be doing all they can to dream up ways of encouraging repeat buying.
The local car wash proprietor who offers “fifth wash free” is attempting to provide an incentive that attracts repeat buyers. This simple loyalty initiative rewards loyal customers as well.
There are few small to medium enterprises where managers have a handle on just how many customers they lose. According to author Frederick Reicheld in ‘The Loyalty Effect’, US corporations on average lose half their customers every five years.
Former customers can do a great deal of harm to a business. Their criticism and disaffection can be easily spread. There is an eager base of potential customers listening with both ears. You can be losing business without even knowing it is happening.
Losing longer-term customers can cost a business dearly. Even where the organization is able to replace lost customers with newly acquired customers the damage remains. The company loses because new customers are not as profitable as old customers due to the cost of acquiring them and the up-front servicing costs. Studies show that it costs seven times as much to get a new customer as it does to retain an existing one. When you consider the cost of advertising, marketing and promotions it is easy to believe that statistic.
Depending on the business it can take new customers a considerable amount of time before they start purchasing at the rate of the long-term customer whom they replace.
In many businesses, customers can be streaming out the door while there is too much measurement and analysis of profit and not enough attention given to the creation of customer value. You need to survey customers and find out what they are saying and also track lifetime purchases.
Once detailed purchasing behavior is known, almost always the Pareto Principle becomes visible where 20 percent of customers will be producing 80 percent of profits. However, this 80/20 rule should be thought of as a guide only. We have had occasion to test the Pareto principle on many of our clients and it is amazing how accurate it is! Be sure to run the numbers on your business to see if it is true for you.
At this point, businesses need to start coming to terms with how many satisfied and profitable customers they keep.
It is critical to look at the question, “which of our customers are the most profitable and have been most loyal and can be defined as core customers?” Once you identify your core customers, then you have to invent ways of treating them well.
Not all customers are equal. Your loyal customers who keep coming back are the ones you have to bend over backwards for.
In all your marketing efforts, it is good to be very clear about the sort of customers you want to attract. Many times it is quite easy to attract the wrong type of customers; the ones who pay slowly (if at all), complain about your pricing incessantly and are generally more demanding on your team. You are much better off to figure out the profile for your best customer and strive to find new folks who fit that profile.
One of the services we provide to clients is a client advisory board. This is where we invite a number of their best customers to a meeting and ask them a number of questions. Some of the primary questions revolve around how they found the business in the first place. The idea is to get this information and then hone the client’s marketing so that it is aimed at the same places they got their best customers. Typically we find that will draw in more of the same type of stellar customers. This is just one way of getting information to profile the best customers a business has but it is quite effective.
What are you doing to retain your best customers? What are you doing to specifically attract more customers of the type you want? Think about this and set some action plans to do some work in this area. It will definitely pay dividends.