Why Customer Retention Leads to Business Success
(Episode 2 of 2 with Dr. Kelly Henry)
Welcome back to another episode with Dr. Kelly Henry. In the last episode, we discussed the importance of great customer service and how it can help us improve our customer retention and referrals. Today, we’re going to discuss why we should focus our efforts on customer retention instead of only customer acquisition.
Key Takeaways
In today’s episode, we will cover the following key takeaways:
- It can be much more expensive to gain a new customer than it is to keep a customer.
- Customers want to stick with businesses that make them feel valued.
- If we make the customer feel like a transaction they may buy from us once but more likely, they’ll go find a competitor to do business with.
- We should try to be the best part of the customer’s day. When we treat our customers with respect, we earn their loyalty.
- When customers buy a product they don’t just take into account the money investment, but also the time investment.
The Economics of Customer Retention
As we mentioned in the last episode, a Harvard Business Review study found that if we increase our customer retention rate by 5%, it can lead to an increase in 25–95% of profit.
In addition to that, it can be 5–25x more expensive to gain a new customer than it is to keep a customer.
The reason this happens is because we don’t have to spend as much money on our marketing efforts as the customer already knows about us and likes us. When they start buying more it adds to our profit, and as their loyalty increases, they start to refer their family and friends, who also become valuable customers. Then, as customers become our marketing piece, we don’t have to put as much money into our marketing and advertising strategies.
“It’s just cheaper to keep customers coming back if you’ll actually focus on it,” Dr. Kelly said. “But there’s so many businesses that are just sales minded, transaction minded, acquiring a new customer minded, and they don’t realize how much more expensive that is than to continue to work with the current clients. . . . You just can’t go wrong by having a focus on retaining more customers.”
When we focus on customer retention, business becomes easier. As we keep customers for longer periods of time, we start to build lasting relationships that in turn, builds loyalty. People like to do business with people they know, like, and trust so if a customer can get to know us, they will be more likely to stay with us and refer us to others.
“It’s so much easier to do business with existing customers,” Dr. Kelly said. “When you create an atmosphere of good customer service and do it consistently, it decreases stress from complaints and issues. There’s a whole lot less fires to put out when you treat your customers right.”
Factors that Influence Customer Retention
The first thing we have to understand is that customer perception is everything. The second thing is that perception is driven by how we make the customer feel. While our products should add value to the customers, the business that truly excels, makes the customer feel valued in every interaction.
“When you’re making [customers] feel valued and special . . . they want to stay with you. That’s the centerpiece of customer retention,” Dr Kelly said. “Customers want to stick with those businesses that make them feel valued.”
Every time we interact with our customers, we should try to create a positive experience since every interaction will affect their perception of us. We can do this by thanking the customers for their service and trying our best to solve any of their complaints or problems. We want to show our customers that we will listen to them, even if they aren’t initially happy with our service. If we make our customer feel dumb for getting confused, they won’t want to come back, but if we show them we are willing to go out of our way to help them, they likely will.
“If you’re making the customer feel . . . like a transaction or just another sale, they’ll sense that,” Dr. Kelly said. “They may buy from you once but more than likely, they’ll go find a competitor to do business with.”
One of the main reasons businesses struggle with customer retention is simply because they don’t focus on it. Many people think that the key to a better business is getting more new customers, so they focus on getting the sale, instead of establishing that relationship with the customer. This can negatively affect their customer retention rates. Instead, they should spend the extra time to make their customers feel important.
How to Show Customers We Care
At Dr. Kelly’s chiropractic clinic, he has the mission statement, “Be the best part of their day.” When we have this mindset with every customer interaction, we will naturally be kind and more understanding.
“In my chiropractic clinics, patients would come back and they would tell us . . . we were the bright spot in their day. It wasn’t so much from what I did from my treatment or adjustment, it was just the attitude, and what they experienced psychologically from my staff and myself that made all the difference,” Dr. Kelly said.
When we treat our customers with respect, we earn their loyalty. I stay at the Marriott Hotels a lot because of how they treat me. Recently, when I took my daughter to college, we stayed at the Marriott Hotels. When we got home, we realized we had accidentally booked an extra day at the end of our trip. I called the hotel, explained what happened, and they were incredibly kind and understanding. They fixed the reservation and we weren’t charged for the extra day.
It would have been within their rights to still charge us for the day as it was our mistake, but they made me feel like I was important. They made me feel like they cared. That builds loyalty. As a result of their kindness, I consistently stay at their hotels and I don’t stay at competitor hotels. They get a lot of business from me as a result of helping me feel valuable.
Dr. Kelly has had similar experiences with Marriott Hotels. He had some flights get canceled so he had to rearrange his hotel schedule. When this happened, the staff at Marriott were very understanding and helped accommodate the cancelation. While they may have lost money with canceled reservations, they gained a loyal customer which earned them more money in the long run.
Sometimes, when difficult customer service situations come up, I love to follow the rule of treating the customer the same way you would treat your mom. If your mom was in this situation, how would you want someone to be treating her? I think if we all did that, we would be treating our customers a lot better than we sometimes do.
Another great way to increase customer retention and show our customers we care is by creating convenience. We want to show our customers we value and respect their time. If it is difficult to return a product or solve a problem it is a big red marker on our brand.
“Statistics are showing that the convenience or how fast you can interact and do business with a company is actually more important than the psychological effect of being made to feel important and special,” Dr. Kelly said. He once had customers leaving him because they had to wait an extra 30 minutes in his waiting room for their appointment. When he fixed this and showed his customers he valued their time, they came back.
If we want to charge more for our product or service, we can reduce the amount of time that it takes someone to interact with our product or service. If we’re purposely allowing our system and our processes to take a lot of time, we can expect that our customers are going to jump ship for competitors that have streamlined that process. There’s huge value being placed on customers’ time. When customers buy a product they don’t just take into account the money investment, but also the time investment.
Connect with Dr. Kelly
Thank you so much Dr. Kelly for sharing your stories and insights with us today. To learn more about or connect with Dr. Kelly:
Next Steps
- Get a free ebook about passion marketing, and learn how to become a top priority of your ideal customers at PassionMarketing.com.
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