The lifetime value of a customer can vary depending on the industry, but this is a very, very important concept that you need to understand when you’re making marketing decisions for your business. You should NOT focus on producing a one-time transaction. Instead you must focus on generating long-term repeat customers because that’s where the most profit is made. Customer retention is probably one of the most important, if not THE most important business matter that will make you more money with less effort than anything else you’ve ever tried in your business. That’s why there has been a tremendous focus placed on the use of loyalty programs.
Many leading businesses are finally waking up to the fact that keeping existing customers active is more profitable than the never-ending treadmill of new customer acquisition. As a matter of fact, the Harvard Business School discovered that, “Companies can boost profits by nearly 100%, by retaining just 5% of their customers.” So you can see the huge impact a tiny increase in customer retention can have on your profits.
Since today’s consumer also has more choices and is better informed than in the past, how can you be sure that your customers will keep coming back? It’s easy – reward them. There’s an old saying that goes “It feels darn good to be recognized in a place you frequent as a customer, but it feels even better to be rewarded for it.”
There’s no question customers love to participate in rewards programs. It’s also clear that these programs can enhance profits. According to recent studies:
As you can clearly see, rewards can help you generate more new customers, who come back more often and refer their friends and family… that’s why we use rewards in our loyalty program, but recent studies have also uncovered some other interesting facts about effective loyalty programs:
Obviously, you can see the value of paying attention to your current customers. There is low or no customer acquisition cost, it helps buffer you from losing them as a customer, and it’s a great way to grow your business, yet less than 3% of small businesses have a customer retention plan. In other words, adoption of a loyalty program can set you apart from 97% of your competition!
Now does this mean you should stop marketing to get new customers? Absolutely not! Your existing customers will eventually move away, die or stop coming in for reasons beyond your control no matter how loyal they are, so there is always a need to “replace” them with new customers. But ultimately, loyalty is one of the strongest tools to influence customer spending.