Investing In Customers The people who put their hands in their pockets to pay you are your only source of revenue. So it pays to think of them as investments that you can plan, make and then nurture over the long term.
Thinking this way can cause you to make better decisions, meaning that you start investing in customers and generating a return. As Warren Buffet famously said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”
It’s time to plant some customer trees! Here are 5 ways to treat your customers as investments.
1. Always focus on the lifetime value of the customer to you, investing in customers.
If you treat customers on the basis of their last order value you will inevitably make the wrong decisions about how much to pay to acquire a customer, and how much to invest to keep them.
So whilst the initial cost of getting a customer is important, it needs to be in scale with what you can epexct from them on an ongoing basis, not their first purchase. Lifetime and product cost, and therefore lifetime value can vary dramatically from industry to industry. Compare for example, how often you buy ketchup versus how often you buy a car.
Seek to understand what your customer lifetime with your business is right now. Then calculate what those customers spend in that lifetime. You’re now in a position to set yourself targets to improve it in stages.
2. Create a spend plan for customer retention.
“Marketing” costs are typically focused on new business generation efforts. But if we take point 1 into account, that seems a little myopic!
Some of your budget should be allocated to customer retention. Once a customer is won, what will you do over the lifetime of your engagement with them to keep them loyal. Service, support and account management all come into this, depending on the industry you’re in. But extra touches, thoughtful gestures, are so important. Service really is the only differentiator in a number of markets now, so work out how to make yours pop.
Build a budget for your retention strategies too so that you can make long-term, planned investments in keeping the customers you have, going the extra mile and keeping them loyal.
3. Create a range of customer retention strategies.
Not all customer retention strategies are equal, and not all will work for you. Create a number of different options that work for different segments – do not “put all your eggs in the one basket”.
Equally, if your customer retention strategies are identical to your competitors’, you’re not creating differentiation. Borrow from other companies, brainstorm with your team. Look for the biggest areas/times/regions you’re currently losing customers and employ retention strategies targeted at those issues.
Check out our Customer Retention Strategy guide for ideas from companies like Virgin, the AA, McDonald’s and more.
4. Calculate success in customer retention over time.
It stands to reason that, like an investment in your personal life in the long term, you will only see the full value of your investing in customers retention over time too. Not only will you see uplift in loyalty and spend from that customer but if you’re getting it right you’ll see them tell others about you and become advocates of your business. Maybe they’ll do a case study for you for example, or talk about you in their next forum or keynote. Investing in customers takes time, and all investments mature over time.
Make sure you’re focusing on that longer timeline when you’re calculating the success of your retention programs. Tracking your current retention rate is the best place to start. Once you know what it is, you can seek to invest to improve it. What’s important is ensuring you’ve forecast out the long term benefits of holding on to each customer. Many benefits will not be seen for years. Many benefits (as above case studies, keynotes) are somewhat intangible but are important to capture.
It’s fairly straightforward to calculate and track your customer retention rate, although there are a few holes in the road to watch out for. Our Customer Retention Rate page shows you exactly how to do it.
5. Invest in a customer monitoring system.
You wouldn’t make a major investment in the stock market and then not check on its performance for a year. So why do it with customers? If you’re spending money on getting and keeping customers, make sure that you monitor their satisfaction regularly. A single poor experience can be enough to damage a relationship and the only way you’ll know how your customers feel (given that more than 90% of customers don’t complain, they just walk away) is if you ask. You need to be careful doing it, as long surveys can often have the opposite effect to the one you intend and actually annoy them. See our very popular “5 reasons online surveys don’t work post“. This long term customer monitoring is exactly why we created Customer Thermometer in the first place. A light touch and swift rectifying action works wonders for long term customer relationships.
Change the way you think about customer and client retention by adopting an investment mentality.
- Check out our comprehensive Customer Retention Guide
- Got a presentation to do on Customer Service? Grab our top 10 quotes in deck-ready format
- Our guide to the 5 best TED talks on customer retention
This post was originally published in 2011 and was fully updated and rewritten in July 2016.