What is Your Customer Retention Rate?

Do you know what your customer retention rate is?  If not, stop what you are doing and quickly figure it out before it might be too late. If you do know, are you sure it is correct or it might be a misleading percentage.  Let me explain about both situations. 

First, a reference point.  Customer retention is a set of programs/activities designed to keep existing customers, plain and simple.   Other than the very logical reason of reoccurring revenues why would one want to have a customer retention strategy?  A study by Bain indicates that the average company loses about 10-15% of its customers each year. It has also been proven that an existing, happy customer generates a multiplying factor in revenue returns.

 Second, according to Rocket Watcher the probability of selling to an existing customer is 60-70% versus 5-20% for a new customer.

Third, the 80/20 rule usually applies; 80 percent of a company’s revenues come from 20 percent of its customers, thus if one loses some of the 20 percent, one incurs a large revenue decline.

Fourth, without a good customer retention program, you might wake up one day and find out that you just lost a good percentage of your customers and this could have been prevented because signs of customers leaving usually happen before revenues leave. Thus with a customer retention (or broader speaking a customer satisfaction) program, one would have some early warning signs.

Fifth, generally speaking, companies only hear from a very small percentage of their customers who are dissatisfied.  Again without a customer retention program, your percent ranking may be very misleading.

So what should one do relative to customer retention?  There are a number of strategies and practices one can employ for customer retention.  Here are some ideas that can get you off to a good start.

  • COMMUNIATE with your existing customers.  Make it a two way communication.  Send information/alerts; ask survey questions, set up customer forums/roundtables, a customer blog.  Remember out of sight, out of mind and thus potential migration to your competition!
  • Have customer events, conferences, LinkedIn groups or some form of social network. Also, go easy on the selling during these specific events.
  • Make the customer happy via some form of a loyalty program or incentive or recognition system.
  • Have best in class customer service.  Don’t have people who just answer the phone, but have people who listen, solve the customer’s problem and follow up.
  • Set up a metric system that gives you information against the targeted goals and have some form of a prediction analysis so you can take corrective action when needed.

These are just a few ideas about having a real and reliable customer retention program. The key points are if you don’t monitor how you can measure, and in this case if you don’t get real feedback, your rating is absolutely meaningless.

RHL 9/28/12

1 comment to What is Your Customer Retention Rate?

  • Jim Matorin

    Bob: Customer retention is so vital to my industry, foodservice.  We sell a versatile widget that if an operator stocks it (certain items), they can menu it several different ways, more than one time a week.  Example 8 oz. piece of salmon: as is, different sauce each day, cut in four for an appetizer, on a salad, in a pasta, etc.  What I do not understand is how slow my industry is to embrace retention, even on the operator side of the business which is all about getting guests in the door.

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