Business Retention Is More Than Customer Retention

Anne MinerBy Anne Miner, President, The Dunvegan Group

Customers are the lifeblood of any business; without customers, there is no business. And customer acquisition is a significant area of activity and expense for every business.

It is generally believed that the cost to acquire a new customer/replace a lost customer is five times higher than the cost of retaining an existing customer. While there is considerable variation in the actual replacement cost (depending on the revenue for the lost customer) we accept the premise that replacement costs are higher than retention costs.

On the assumption that satisfied customers are more likely to be retained, businesses have invested in maintaining high levels of customer satisfaction. When you add the customer’s perception of the pain of changing to another supplier, and their perception of whether other companies are likely to perform better than yours, an even more precise measure of the likelihood of customer retention emerges (more on this in a future article).

But, a high level of customer retention does not guarantee that your business will thrive.

As pictured above, if the customers you keep do not continue to spend at the same level, or higher, your business may suffer. Business retention means keeping both the customer and their revenues. This means you need to know more about your customers than simply how satisfied they are with your company; you need to know whether these customers will continue to do business with you AND spend more with you.

On top of whether or not they are satisfied, you really need to know your customers, their business and the business environment. You need to know what share of the customer’s wallet (spend) you have captured and where the opportunities for growth can be found.

If your customer is very satisfied with their experience in doing business with you but is about to move their plant to Singapore, you will not keep their local trucking business no matter how satisfied they are with you. If your customer is very satisfied with their experience but new owners have a preferred supplier, you may keep the customer but experience declining revenues. Or perhaps you have succeeded in capturing 100% of the customer’s spending but they are heading into a period of consolidation where you are not likely to see much growth for the next year or two; you may retain the business but experience little growth.

Some less profitable customers may provide sufficient cash flow to justify keeping them; others may deliver relatively little revenue and yet having them on your customer list contributes to your credibility and esteem. Some profitable customers may be so difficult to deal with that retaining their business may be costing you in other ways (e.g., low employee morale leading to turnover).

In summary, as you consider your business retention strategy, you will want to identify the value of each customer, and decide whether or not it is desirable to keep every customer, regardless of their level of satisfaction and revenue.

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