Friday 14th of October 2022
Business owners in South Africa keep chasing new customers to increase sales, and in the process,
...they forget about the existing ones. It has been...
Business owners in South Africa keep chasing new customers to increase sales, and in the process, they forget about the existing ones. It has been proven that retaining customers is way cheaper than acquiring new ones. Customer retention pays off because current buyers play a significant role in bringing referrals and making purchases frequently.
It is easier to sell to customers who are familiar with the brand and are satisfied with its products and services. Conversely, influencing a potential buyer can cost a significant marketing spend, time and effort. Thus, business owners should pay attention to the role of customer retention in driving profits. Enhancing loyalty can pave the way for success with low investment and high returns.
What Is Customer Retention and How Does It Drive Profits?
Customer retention is the process of making buyers stay with the brand for a long period to become loyalists. It involves undertaking strategies that make the buyers stick around despite getting tempting offers from competitors. Thus, entrepreneurs who have purchased businesses for sale in South Africa use customer loyalty programs to keep the clients on board and avoid straying. It helps them to stop churning and reduce the wastage of their advertising budget.
A loyal customer is capable of becoming a brand advocate who can provide the business with positive reviews, ratings and word-of-mouth publicity, which increases visibility and credibility. With digital platforms becoming the most preferred channels for engagement, loyal customers can play a pivotal role in creating a buzz on social media. They can help with product demonstrations and sway public opinion by becoming a part of discussions and groups.
User-generated content helps to influence potential buyers and increases sales. In addition, loyal customers suggest people in their circle and relations to buy from the brand, which works in favour of the business. The loyalty programs include discounts offers for bringing referrals. Thus, retention results in acquisition, which makes customer loyalty programs a highly relevant process for businesses.
Loyal customers tend to buy more often. They become emotionally connected to the brand and generate long-term revenue for the business. They believe in the company's products, vision and mission and are willing to spend on complementary and high-end products, unlike new customers. Thus, up-selling and cross-selling allow the business to boost profits.
How to Measure Customer Retention for Business?
The customer retention rate is calculated for a defined period, such as the quarter or annual figures. It can be calculated by gathering data about the number of customers at the beginning of the period (CB), the number of customers acquired during the period (CA) and the number of customers at the end of the period (CE).
The formula for customer retention rate is as follows:
CE – CA / CB X 100
For example, if a business had 500 customers when it started using customer retention strategies and acquired another 500 during the quarter but had 800 customers at the end of the period, its customer retention rate will be:
800 – 500/ 500 x 100 = 60%
The retention rate percentage benchmark varies for different industries because some sectors have high customer attrition rates. However, if the retention rate of a business is less than 50%, it must work on improving its strategies.
How to Improve Customer Retention for Driving Profits?
Businesses can generate an excellent income if they manage to make the customers come back again and again. However, it is easier said than done. It requires a lot of groundwork and decision-making. Here is how customer retention can be enhanced.
Different customers are at different stages of the customer lifecycle, which begins with awareness and ends with loyalty. To ensure customer retention, business owners must understand the needs of the customers and fulfil them accordingly. Thus, the business must know if the customer needs to know more about the product or brand or needs help with the purchase decision.
Personalised messages for brand communication can be designed based on this customer data. Sending standardised emails to all buyers may not go down well with them. This approach makes all the difference needed to succeed in earning their loyalty. Entrepreneurs who have purchased a business for sale in South Africa must follow this approach to make their customers stay.
If you wish to retain customers, you need to determine the reasons for churning. These can range from bad customer service to a lack of communication and forced on boarding into loyalty programs. If you are able to identify the problem areas, you can work on correcting the approach.
Customer loyalty programs are the best way of ensuring retention because they incentivise customers to make new purchases. These include offering reward points that can be redeemed on the next shopping trip, getting a gift on purchasing items worth a certain amount, a free lunch or movie ticket, etc. These work as motivating factors to stay loyal to the brand.
Business owners need to devise easy-to-understand loyalty programs that do not involve complicated forms or waiting for months before getting the incentive. They must inform the buyers about the entire process and offer it to willing buyers only without any spamming or pushing to get enrolled.
Customer loyalty becomes more pronounced when the buyers are treated with respect, and special efforts are made to listen to them. Customer relationship management helps to know their brand expectations and fulfil them to increase their satisfaction levels. Whether it is in-store service or on-call help, the customer care team must be on their toes to make the customers feel special and important.
With the world grappling with various economic, climatic and humanitarian crises, it is essential to stay socially responsible. Buyers want to connect with brands that work for the greater good and their community. In addition, it is vital to maintain transparency in all monetary and experiential transactions with the customers to gain their trust and loyalty for the long term.
Wrapping Up
Customer retention is essential for the growth and enhanced revenue generation capabilities of the business. Thus, entrepreneurs must focus on increasing brand loyalty to maintain steady profits and dodging churning.
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