Have you ever tried to drink from a cup with a hole in the bottom? It’s highly ineffective and quickly gets messy. That’s a lot like what many businesses do every day with their sales funnel. Customers fall out of the bottom of it almost as fast as they come in the top. If customer retention suffers, the bottom line will get destroyed.
Often, we get overly focused on sales, prospects, and our marketing messages to get new customers. In the back half of ’21, shift some of that focus to customer retention and your profits will significantly improve. According to a study by the Harvard Business School, increasing customer retention by just 5% will on average increase a company’s profits by at least 25%. That dramatic increase is possible because customer retention lowers our CAC (customer acquisition cost) while raising our customer LTV (lifetime value).
Getting new customers is extremely expensive, the less new customers we need the lower our marketing costs will be. Also, it should be obvious that the longer we can retain a customer the more value they bring to the company. When both happen together the bottom line dramatically increases.
Of course, taking great care of our customers is the number one way to increase customer retention. Every company should monitor their churn rate to know how they are doing with customer retention throughout the year. Our churn rate is a good indicator of how our marketing bridge is performing. When we notice a downward trending churn rate that should send us clear signals that we need to fix holes in our marketing bridge and sales funnel.
One customer retention tactic that many businesses should consider is a customer loyalty rewards program. Something that incentivizes the customer to shop repeatedly. There is certainly no hotter trend right now among restaurants than app-based customer loyalty reward programs that are aimed at increasing customer retention. Companies such as McDonalds, Taco Bell, Dominos, Chipotle, and Wendy’s have all recently rolled out new loyalty reward programs.
Also, Popeye’s Chicken has recently launched their first ever app-based loyalty program to compete with the incredibly popular program by their largest competitor, Chick-fil-A. Popeyes’ new rewards program should also enable the brand to better understand its customers’ ordering behaviors and more effectively market to them. Another benefit is the potential to drive new customer acquisition, as well. According to a 2019 Publishers Clearing House study, “19% of consumers said a loyalty program would be enough for them to try a new QSR and 30% of respondents said they would download a restaurant app to gain loyalty points.” When used effectively, these programs can greatly lower CAC and reduce overhead costs.
Examine ways you can increase your customer retention through incentivizing customers to be repeat shoppers and making sure your marketing bridge is free of holes. Customers have more choices than ever and therefore we must prioritize ways to enable them to do business with us as easily as possible. By focusing on lowering our CAC and increasing LTV our profits will soar in the back half of 2021.