Have you ever heard a statistic being reported that just sounds like it couldn’t possibly be right? Customer retention and bottom line statistics are like that - utterly unbelievable.
A 5% increase in Customer Retention Can Increase Profits by 95%
Sure, it seems logical that avoiding customer attrition would be a good idea, but the numbers show that a 5% increase in customer retention can yield a staggering 25-95% increase in profits. Let me say that again, a 25-95% increase in profits. 25% is believable, but as much as 95%?
Could that really be possible? Statistics lie of course. But there are even more statistics that show that existing customers buy 33% more than new customers, AND the average repeat customer spends 67% more in the third year of a business relationship than they do in the first six months. Even allowing for how numbers can be massaged, it seems utter madness to not be working as hard on retaining and developing customers as it does on acquiring new ones.
Companies Still Focus on New Business Sales
And yet there are over 90,000 books on sales available on Amazon, and only 336 books on customer retention. I’ll be generous and add the over 20,000 books on customer service too. What’s going on? Perhaps businesses are already very good at retaining customers and encouraging additional sales from those customers. In some cases it’s incredibly easy – a customer purchases a consumable item that they then continue to buy again and again. Focusing on the initial sale in that case makes sense.
But what about service-based businesses? It isn’t always a given that a customer will continue to buy from you. Nor that they will purchase even more from you after you’ve established the relationship. It’s like any long-term relationship, it takes some effort to keep it fresh.
Business Success Comes from Investing in Existing Client Relationships
Given those incredible statistics, doesn’t it make sense to invest in that relationship? Sure, there will always be some attrition, but it seems the key to success is to focus time and resources on existing clients. It certainly seems like the most successful ones do – consistently ranked the best in service are incredibly successful companies like Trader Joe’s, Zappos, Amazon, Costco and Disney.
So how do you keep that customer relationship fresh? I’d say it starts with listening. Because everyone just wants to be heard. Give your team the time and opportunity to develop client relationships by asking the right questions and really listening to the answers. What seems like it might be a costly use of employee time might just be the longer term answer to increased sales and profit. If you believe the numbers.