Myra's Customer Service Articles

The Proven Profitability of Loyalty

Business is about winning customers and keeping customers. A lot of companies do a great job of winning customers. In fact, many companies have realized exponential growth solely through their acquisition strategy. But too many companies fail to put processes in place to keep the customers they’ve worked so hard to win. And this is a problem because business growth is stunted when companies don’t combine a focused retention strategy with acquisition efforts. Business growth is obtained primarily by doing one of two things:

1.      Gaining market share

2.      Gaining customer share

Most organizations today have as part of their strategic goal, a strategy to increase market share. To achieve growth through gaining market share is to sell to more and more customers. Organizations do this through aggressive sales and marketing campaigns, mergers and acquisitions, and product expansions. But there is another path to growth and profit increase that many companies either fail to realize is available to them, or they fail to mobilize efforts to make it happen for them, and that is to grow by gaining “customer share.”

To achieve growth through gaining “customer share” is to provide a higher level of meaningful customer service and sell more and more to your current customers. You sell more and more to your current customers by getting them to stay with you, spend more with you, and recommend you (often) to people in their network.

The proven profitability of loyalty is experienced when you increase your “customer share.” You make your customers more profitable, and hence, you add net profit to the bottom line.

Increase your retention by 5% and increase your profitability by 85 percent!

Frederick Riechheld, in the New York Times Best Seller, The Loyalty Effect, discusses findings that when a company increases their customer retention rate by a mere 5%, the average return on investment is between 25% and 85%. This profit increase may sound dramatic, but it’s concrete and measurable. Studies indicate that it costs five times more to win a customer than it does to keep a current customer. Here are four more reasons gains in customer share result in bottom line increase (as summarized in The Loyalty Effect by Frederick Riechheld):

1.      Loyal customers are the easiest customers to serve—Over time, you learn the preferences of customers, and they become more educated on the scope of your offerings. This knowledge of expectations on both ends leads to decreased transaction time and fewer problems, which saves you money.

2.      Long-term customers tend to spend more with you than new customers—In a loyalty study of more than 100 companies, an auto-service company found that the expected profit of a fourth year customer is more than triple that of a first year customer. As the business-to-customer relationship grows, profits increase.

3.      Happy, loyal customers purchase other products or services in the company’s line—Resulting, again, in increased profits.

4.      Satisfied, loyal customers recommend the company’s products or services—A recommendation from a friend or colleague can be a decisive influence on purchasing choices.

Generally, increasing your customer retention rate by just 5% can lead to a profit increase of up to 85%.

When companies combine a focused acquisition strategy with a fierce retention strategy, then growth, profit increase, and lasting value is the inevitable result.

Building “customer share” is customer loyalty. If you want to grow your business exponentially, you must get serious about building and maintaining loyal relationships with your customers (and acknowledge that an acquisition strategy alone will not guarantee growth).

About the Author

Myra Golden is one of the service industry's most prominent trainers and a highly regarded business growth strategist. Companies hire Myra and her team to help them build, recover, and strengthen customer relationships. She can be reached at 866-873-8419 or by email at myra@myragolden.com. She also has a website: www.myragolden.com.