Customer demand is the sole reason for the existence of any business. Sale of goods or services to customer generates revenue, which is the top line of the company’s profit and loss statement. Hence getting customers and satisfying their demands is critical for any company.
Today acquiring customers requires investing certain effort and resources. As a company, one has to go through the entire cycle of lead generation to closure, onboarding and payment collection again. This cycle not only requires organizational efforts but also results in direct as well as indirect costs.
But it is not just cost, there are some other benefits to retain customers and build loyalty. Let us understand the five most important reasons to build customer loyalty.
1. Customer acquisition cost
To acquire a new customer, the business needs to spend money to reach potential customers, such as marketing costs and advertising costs. And once a lead is generated, the greater part of organizational machinery is triggered to convert that lead in to a customer. Therefore the more customers a business retains, the less it has to spend to seek new customers and reduce overall customer acquisition cost.
2. Customer lifetime value
Most products except for high value capital durables have the potential to sell more affiliated products or services to the same customer over a prolonged period of time. Moreover, if your nature of product is a consumable which needs to be replenished, or is an ongoing service, your customers are most likely to be your subscribers. Hence it is often recommended to shift the focus from the transaction to the lifetime value of the association.
3. Adjusting to new customer
Just as a business is invested in acquiring a customer, vice-versa is also true. This investment in not only in monetary terms but also in terms of time to build rapport and synergy. Although this may not the be the case for OTC (Over-the-Counter) products for B2C, this is the case for most. In certain cases, the production needs to be re-adjusted for new customer, resulting in direct as well as indirect cost of adjustment costs and lost revenue.
4. Risks of the unknown
At least known risks are better than unknown ones. There is always an underlying risk of customer satisfaction, payment collection, and service demand with new customers. When you already know your customer, you can predict and manage the risks better than unexpected ones.
5. Slack period
Slack period refers to the time gap and lost inventory movement from the loss of one customer till acquisition of another. The slack period can be eliminated with customer retention. The duration and impact of this slack period depends on your nature of business and volume of business with the customer. However, eliminating slack period through customer retention impacts profitability.
To strategize profitable customer retention, please feel free to connect with our business experts.