Late last year, I wrote about a topic that is important to all small businesses -- finding more customers. As we approach the middle of the year, I thought it made sense to follow up that piece with a post that focuses on keeping those customers you have worked so hard to land this year, and building CLV – customer lifetime value.
We’ve long heard about the costs of keeping clients vs. obtaining new ones. The common belief is that it’s 50% easier to sell to existing clients than to new prospects. According to Bain and Co., a 5% increase in customer retention can increase a company’s profitability by 75%. Gartner Group says that 80% of a company’s future revenue will come from just 20% of its existing customers.
Meanwhile, deepening connections is the key to keeping your all-important existing customers. A survey by Braun Research shows that nearly 6 in 10 U.S. small business owners (SBO) said establishing relationships with customers was the primary driver of repeat customers. No other responses in the survey came close to this, with “low prices” and “prime location” tying for second, with just 11% each.
So while the evidence to keep existing customers happy and engaged is seemingly overwhelming, just how should SBOs increase customer lifetime value? Here are five tips:
- Establish loyalty with your brand: Leading brands (Apple anyone?) provide consistent quality, outstanding customer service and high value. Loyal customers will be repeat customers and the first to try your new products. Determining factors for brand loyalty include superiority of products (or services), quality of customer service and subtle “shared values.” Harvard Business Review says 64% of participants in a study cited shared values as the primary reason for maintaining a brand relationship. Clearly communicating your brand philosophy – one that reflects your customers’ beliefs – has become important to many people today.
- Get to know your customers: You may already know who your existing customers are and what they purchase the most from you. But are you tapping into the insights you may already have about these individuals to deliver the ultimate customer experience? Use data analytics to better understand buyer behavior, buyer shopping patterns and product and service lifecycles. Study the traffic on your website and the actions that you take that move your customers to better connect with your brand. Through ongoing analysis of this data, you can work on giving your customers more of what resonates with them. Also, the data can help you personalize your communications to align and target customer needs with the right message at the right time. Doing so will enable you to better deliver the kind of customer experience that will keep them in your corner over the long haul.
- Find opportunities to upsell value: When you increase the average deal size (“would you like fries with your burger?”), you make more over a customer’s lifetime. Look for and communicate ways to add more value to your product or services. However, be sure to offer honest, targeted information that will truly help. Unrelated or questionable recommendations damage the credibility of helpful, relevant offers. Communicate the benefits in customers’ terms, and don’t overpromise what you can deliver.
- Offer gifts as rewards and incentives: Create an incentive scheme that grabs (and holds) your customers’ attention. Avoid discounts and instead offer exclusive products or value-added services. Studies show that discounts lead to reduced lifetime customer value and decreased perceived value, while free gifts maintain quality perceptions and increase deal value. Be sure to clearly communicate your rewards program, and make the rewards attainable and complimentary to your products or services.
- Use multiple touch points: To increase customer lifetime value, maximize available communications channels. Offering multiple contact points (email, face-to-face, social media, etc.) enables customers to choose how they’d like to be contacted. Most people these days don’t want to be contacted over the phone, preferring email or text messages. Also, social networking is ideal for communicating and instilling shared values.
There’s no doubt that investing in relationships to build CLV increases loyalty and maximizes revenues and profitability. What do you do to drive CLV for your business?
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