If you’re a small business owner, it can be tempting to focus your marketing on acquiring lots of new customers. Yet growing loyalty among your existing customer base can reap huge rewards for your business.
Acquiring new customers is exciting and an important part of any business. Yet it’s also expensive and time-consuming. In fact, it costs up to five times more to acquire a new customer as it does to retain an existing one. And the likelihood of selling to a new prospect is just five to 20%, while for an existing customer, it’s 60 to 70%.
"Retention is vital," says Andrew Goodacre, CEO of the British Independent Retailers Association. "It is all about connecting with customers and communities."
Why retention matters
Gaining trust and loyalty among your existing customers, can help grow your business faster than your sales or marketing teams. Loyal advocates will not only spread the word among their friends and families, they will give you valuable feedback on your products or services and spend more with your company over time.
Word-of-mouth marketing is far more powerful than any paid-for campaign. Research suggests that 90% of consumers are more likely to trust and buy from a brand recommended by a friend. What’s more, existing customers spend as much as a third more than a new customer, simply because they know and trust you.
And the value of loyalty extends further than monetary value. Business growth depends on more than profit boosting. It’s also about continually optimising your offering to stay ahead of competitors and to meet the ever-changing requirements of your customers.
Your loyal customers can help you achieve this. Talk to them, ask them what they like and what they don’t like and use this feedback to shape your strategy.
How to measure retention
Understanding the spending behaviour of your customers is important, equipping you with the knowledge you need to learn and grow. Goodacre suggests measuring conversion rates, meaning the percentage of customers who visit your store versus those who buy; spend per head; website visits and footfall.
"We focus on growing the long-term value of our customers, because often with the greater engagement their short-term value drops," says Rob Ward, consumer insight manager at Neal’s Yard Remedies. "If they are shopping with us more often, the transaction value may drop, but because they come back more often, they become more valuable."
By measuring the long-term value, Ward says Neal’s Yard has proven that with its loyalty scheme members, email opt-ins, and direct mail increases customer value to the company by as much as 125% on average.
Customer retention strategies to maximise revenue
Turning a happy customer into a loyal brand advocate requires building trust over time. And there are lots of ways you can do this.
1. Offer a loyalty programme
"When it comes to customer retention, we’ve found that a combination of our loyalty scheme and direct mail have proven to be the most successful," says Ward. Common loyalty schemes offer points that convert into rewards and special offers.
2. Conduct polls and surveys
"Really get to know your customer," says Goodacre. This might include encouraging product reviews on your website and also email polls, which can help you gauge product preferences and attitudes towards your brand.
3. Personalise your outreach
Use data to personalise your communications. Address each customer by their name, send vouchers on their birthday, and tailor emails so they’re relevant to each individual. "We’ve been able to carefully segment our customers based on their interaction with our loyalty scheme, and then send them relevant and engaging direct mail at the right stage in the customer journey," says Ward.
4. Host unique events
Host unique experiences to entice old customers to come back and to retain new ones. This could be a pop-up, a seasonal event, or a workshop. Neal’s Yard, for example, runs workshops and therapies, such as aromatherapy classes and facials.
5. Install user behaviour technology
If you sell online, then it’s well worth installing user behaviour technology, such as Google Analytics or HotJar. Both these platforms offer free versions of their products, allowing you to capture metrics, such as the number of new users versus existing users to your site, their location, and the content they are viewing.
6. Explore email marketing
Email is one of the most effective marketing tools. In fact, it can be up to 40 times more effective than social media. Consider incentivising customers to sign-up to your newsletter. For instance, this can be done by offering a discount on their first purchase.
Remember: the most effective retention strategy actually boils down to securing a good opt-in when a customer first interacts with your brand.
