“Because the purpose of business is to create a customer, the business enterprise has two — and only two — basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.” — Peter Drucker
Many years ago, Peter Drucker made the profound observation quoted above. He is worth listening to because his writings have contributed to the practical foundations of the modern business firm. He invented the concept known as management by objectives and has been described as “the founder of modern management”.
If you ask business owners today to list their priorities, you will find them in the order of finance, sales, production, management and employees. In these rapidly changing times, more so in our highly unpredictable and chaotic economy, very few business owners include marketing and innovation on their list of priorities. As a result, you find many small businesses losing customers. This has contributed to the collapse of many firms that have lost customers to hungrier competitors.
Everyday there is another firm working hard on taking over your customers. With a shrinking number of customers in this challenging economy, you have to put a lot of effort to maintain your existing customers. It is five times more expensive to acquire a new customer than to retain an existing one. Today I am sharing with you four tips that will help you keep your customers and maximize customer lifetime value.
For those unfamiliar with the metric of customer lifetime value (CLV), it is used to identify approximately how much a customer is worth to your company. It is calculated by working out the total profits generated over the duration of your relationship, minus expenses and is concerned with nurturing customer loyalty and retaining customers beyond their initial purchase.
Identify and focus on your best customers
There is principle called the Pareto 80/20 rule. It was first described by Italian economist Vilfredo Pareto who observed that 20% of the pea pods in his garden contained 80% of the peas. With further observation, management consultant Joseph M. Juran suggested that for many events, roughly 80% of the effects come from 20% of the causes. In your business, there are 20% of customers who bring in 80% of your profits. The other 80% take up 80% of your efforts but bring in only 20% of the profits. You must, therefore, identify that 20% that brings in 80% of your income and pay special attention to them, as, due to limited time and resources, you cannot focus on everyone.
Maintain customer satisfaction
This is the most important element; all others depend on it. The inability to satisfy customers quickly results in the loss of a customer base for a business and soon after that, the loss of the business. First, make sure you have a quality product or service. Next, ensure your business and employees are easy to deal with and polite. The words, “thank you,” go a long way. Empower your customers and ask them questions to make sure their needs are met and they are fully satisfied. After all, dissatisfied customers tell seven to ten people, while satisfied customers only tell an average of one person.
Build long-term relationships
Small business owners have been known to care only about making a sale. They would even hire fast-talking sales reps who would use all sorts of tricks to get a sale. Often customers would buy once and never come back. Many feel cheated when a product or service does not fully meet their expectations. For long lasting relations, be honest to your customers; deliver what you promise, when you promised. If there are any challenges in meeting your promise, inform the customer in time. Stay in regular contact with your best customers so that you hear about their concerns and problems, thus leaving no room for competitors to take over.
Keep customers coming back.
Stay in contact with your best customers so you can ask for a reorder and renew the value of your product. Sometimes, it becomes necessary to resell your product or service, and remind them why they came to you in the first place. “When we first talked, you told me … Is that still true? Did we deliver on that? What’s important now?” Reorders are much more profitable than new business since there is no customer acquisition cost. You might even have some leverage to offer a discount.
Anticipate their future needs
Ensure that you are seen as the leader in your industry by knowing more about your market than your competitors know. Understand the trends and changes that are likely to affect your best customers and tell them before anyone else does. They will come to rely on you for information for making decisions and you will be their supplier of choice.
Follow these tips and you will be able to keep your best and most profitable customers and grow your business even if times are tough.
Phillip Chichoni is a consultant who helps SMEs and entrepreneurs build sustainable businesses. You may contact him by email, firstname.lastname@example.org. You can also visit http://smebusinesslink.wordpress.com