7 Tips to Increase Profitability by Retaining Customers
Pareto’s principle is that businesses get 80 percent of business from 20 percent of their clients, meaning that retention of these customers is crucial to success. According to a study conducted by Harvard Business School, “The high cost of acquiring customers renders many customer relationships unprofitable during their early years. Only in later years, when the cost of serving loyal customers falls and the volume of their purchases rises, do relationships generate big returns. The bottom line: increasing customer retention rates by 5% increases profits by 25% to 95%.”
Research conducted by the U.S. Chamber of Commerce and the U.S. Small Business Administration revealed: “Businesses could greatly improve their customer base if they focused more on retaining customers than spending marketing budget funds to get new customers.” Numerous studies have shown it takes more money to acquire a new customer than it does to retain a current client. Here are some additional statistics:
- The average U.S. business loses 50% of its customers every five years.
- It costs six to seven times more to find new clients than it does to keep existing clients.
- Bain Co. states; a 10 percent increase in customer retention is equal to a 30% increase in company value.
- You are four times more likely to do business with an existing customer versus a new customer.
- The probability of selling to an existing customer is 60 to 70% versus 5 to 20% to a new customer.
To help you improve customer retention, we’ve compiled the following seven tips for small businesses to identify, engage and retain valuable customers.
1. Set expectations early
Businesses should build strong and trustworthy relationships from the start. For example, when your team delivers faster or more than promised, you build a foundation of excellent service delivery. You can reinforce this by responding quickly to questions, maintaining a record of communication and commitments and exceeding expectations. You should go even further with the quality of your after-sales service and support.