Recurring revenue models continue to be on the rise in our industry, as well as others. It’s predictable, stable, and can be counted on in the future with a high degree of certainty. And while in today’s world, where the consumer holds the power, customer retention is important for any size business; in recurring revenue models it becomes the Holy Grail.
So how do you go about retaining customers? Customer retention begins with the first contact a company has with a customer and continues throughout the lifetime of the relationship. A successful retention strategy takes this entire lifespan into account, and recurring revenue models rely on maximizing value during this timeframe.
The subject of customer retention versus customer acquisition, and which has the greatest impact, is often debated in conversations involving marketing budgets. Key data points from studies done by Bain & Company indicate that an increase in customer retention of five percent can lead to increased profits of 25 percent to 95 percent. Other key stats indicate that existing customers are much easier to sell to, with a close ratio of 60 percent to 70 percent versus five percent to 20 percent with new prospects. Additionally, existing customers are 50 percent more likely to try new products and spend 31 percent more compared with new customers. And one of the most stated statistics is that it costs five times as much to acquire a new customer than to retain a current one.
Although customer retention campaigns have gained momentum in the past few years, research indicates that 44 percent of companies have a greater focus on customer acquisition, 40 percent have an equal focus, and only 18 percent have a greater focus on customer retention. So why hasn’t customer retention become the priority?
First off, retention strategies take a much longer time to show true results compared with traditional customer acquisition campaigns. It’s not rocket science to determine acquisition ROI of an ad campaign, but the true results of a customer retention initiative are often difficult to measure. Second, “low-cost” opportunities to enhance retention rates are limited. Although there are a number of ways to bolster customer retention, most require substantial investment.
Before considering which customer retention strategies to implement, it is critical to understand the data about your existing customers. Start by creating profiles on your “good” customers and “bad” customers. The profile of a bad customer might include one that primarily purchases low-margin products, continuously demands non-standard services, or has an exceptionally high level of product returns. In comparison, the good customer profile may be one that typically places standard orders, purchases high-margin products, rarely asks for special services, and requires minimal customer support. After sorting good and bad customers, determine how each customer was acquired in the first place. Which channel or marketing medium attracted them?
Next, dig deeper into the data of your good customers. Do they come from specific vertical markets? Do they tend to fall within certain geographies or demographics? Are they responsive to communications, and if so, what form? Begin to understand what they react to and what they actually want. Interact with these customers whenever possible. After you have a good understanding of the ideal customer, it will be easier to select and implement customer retention strategies that work. Here are a couple of common strategies to get started with.
Make Customer Service a Priority
Reportedly, 89 percent of customers will start doing business with a competitor after a negative customer service experience. If this doesn’t make you understand that customer retention is directly connected to customer service, perhaps this will: by the year 2020, customer service will beat out price and product as the key brand differentiator.
“The key is to set realistic customer expectations, and then not to just meet them, but to exceed them—preferably in unexpected and helpful ways,” English business magnate Richard Branson famously advised.
Are you setting customer expectations? How do you monitor your performance?
Focus on Customer Complaints
As Bill Gates said: “Your most unhappy customers are your greatest source of learning.”
Typically, businesses hear from four percent of their dissatisfied customers, which means 96 percent never voice their complaints. Although hearing complaints about your business can be painful, it is important to realize that it is a key component of customer retention. Come up with an internal process to make it easy for the customer to tell you about their issues. Track each complaint and compile the data on how it was resolved.
Moving forward, more and more vendors will be shifting their revenue to service models, and they will be looking at customer retention as important channel KPIs for a comparative measure of performance and partner value. This will require partners to develop customer retention campaigns that are successful and measurable, resulting in higher levels of customer satisfaction. Remember, the benefit of customer retention strategies starts with the selective acquisition of appropriate customers.
R. Randal Riebe, district manager of commercial installation solutions for Yamaha, is a senior channel sales management executive with 18-plus years of experience building teams for global technology providers within the unified communications, audio/video, and control and automation industries.
R&G Technologies is an IT support company based in Australia that utilizes a quarterly customer satisfaction survey to determine what their customers think about their service and hopefully identify unhappy customers that might be potential risks for cancelling their contracts. They focus on asking questions that provide insights across four key areas including: accuracy, attention to detail, partnership, and helpfulness.
The survey provides them with actionable customer insight that allows them to modify business processes that improve customer service and have a positive effect on improving long-term customer retention.