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Losing and Keeping Customers


It’s always worthwhile to take a closer look at statistics, and see what they actually mean. Consider the following statistical tidbits (both from McKinsey):

An average company loses between 10 – 30% of its customers annually, and Only 12% of current marketing spend is on customer retention.

It would be easy to look at those numbers and imagine that they’re somehow balanced: you lose perhaps 15% of your customers, and you spend about 12% of your marketing money to keep them.

But it’s hardly that simple. Lost customers are expensive: Each lost customer is someone who already knows about your store, has already done business with you, and knows what products or services you sell. Replacing that lost customer with a new customer requires money and time spent on advertising and promotions – it’s a bit as if you had to reinvent the wheel every time you go to drive your car.

And lost customers are frequently not neutral about the stores that they no longer do business with. Even a lukewarm former customer can be a source of negative word-of-mouth advertising: “Well, they’re OK, I guess. Sort of. But I just don’t bother going there any more.”

That’s not likely to bring new customers to a store – and it is likely to keep more than a few potential new customers away. Genuinely unhappy, alienated customers, of course, can do much more harm than that; their word-of-mouth can be scathing, and if they’re angry enough, they may not let facts get in the way of a good story.

By the same token, a customer retained can be a positive asset, both in terms of ongoing sales and word-of-mouth. The more loyal a customer is, the more money he or she is likely to spend at a store; the value of a retained customer includes the value of likely future purchases, and those purchases will have required less advertising and promotion than the equivalent number purchases from new customers.

The payoff from positive word-of-mouth can be even better than that: Highly credible testimony from satisfied customers is the kind of first-rate advertising that money alone can’t buy. Satisfied customers who are vocal about their positive experiences with a business act like recruiting agents, actively working to bring more customers in. All of this has to be counted as part of the value of a retained customer.

This means that money spent on customer retention programs is likely to have a considerably higher return on investment than the equivalent amount spent on bringing in new customers, or on brand awareness.

It also means that an inadequate investment in customer retention can have a considerable cost associated with it, beyond the added cost of bringing in new customers: Lost customers represent increased negative word-of-mouth, with its capacity for driving potential new customers away as well as the loss of positive word-of-mouth and the new customers which it might have brought in.

Money spent on customer retention is money spent efficiently, and with a high return on investment – that’s the story behind the statistics.

If you would like to know more about how the ASK LISTEN RETAIN System or how it can help create customer retention and loyalty, please contact us.