Return customers can be a difference maker for your business
There’s nothing more exciting than new customers, right? Like that proverbial “new car smell,” the promise of fresh customers spending their first dollars with you is immeasurable.
But does that mean you should be focusing all your attention on getting new customers to try out your business? Not so fast. While there’s no disputing that new customers are crucial, retaining existing customers is even more important.
Here are four reasons that is the case — and how measures like Customer Satisfaction Score (the CSAT score) can help ensure they become repeat customers in the first case.
#1. Existing customers spend more money
New customers may be willing to spend money on your business, but how much? In the same way that they are a novelty for you, so your business is a novelty to them. They’re more likely to spend a little bit and see how it works out for them. If all goes well, there’s the possibility that they’ll ramp up the spend on future occasions. Existing customers, on the other hand, have been through this trust exercise. They’re repeat customers precisely because they know that you deliver — and they’ll reward you accordingly.
One survey carried out by BIA/Kelsey found that upward of 50 percent of annual revenues from responding small businesses came from customers doing repeat business. More notably, they were also likely to spend an impressive 67 percent more when compared to new customers. This increase was evident when comparing months 31 to 36 of loyal repeat customers’ spend with a business, compared to the first six months in which they were new customers.
Another report from Bain & Company notes that, in apparel, customers’ fifth purchase is 40 percent larger than their first — while the tenth purchase is close to 80 percent larger than their first. In other words, think of a long-term relationship instead of single dates.
#2. They’re more likely to promote your business
You DO want new customers along with existing ones — and the best way to get new customers without spending a whole lot of cash (more on that later) is through strong word-of-mouth. Whether it’s a new TV show or a food subscription box, all of us will likely have had the experience of having someone we trust recommend a product they think we’ll enjoy. These testimonies carry weight precisely because they come from a person we trust.
So which customers are most likely to help promote your business to the greatest number of people? That’s right: Long-term existing ones. The aforementioned report from Bain & Company notes that, when it comes to apparel, shoppers will refer an average of three people to an online retailer following their first purchase. However, that number increases to seven people after ten purchases. In consumer electronics and appliances, the number of initial referrals was around four, which increased to 13 following ten purchases. It’s not that customers magically become salespeople for your firm after a certain amount of time; it’s simply that, the longer a person is in a customer relationship with you, the more opportunities they’re going to have to talk about what you’re doing.
#3. You can cross-sell existing customers more easily
Earlier, we mentioned that existing customers will spend more on businesses. This isn’t necessarily because they just buy bigger quantities of the same product that brought them through the door. If you’re an online retailer that sells homemade pasta, there’s no reason to expect that customers suddenly gain a much bigger appetite at mealtimes around their tenth purchase, compared to their first.
Instead, what happens is that loyal customers are willing to buy different types of products. A customer who came through your virtual door to buy homemade pasta may, after building up trust with you, be willing to also buy homemade pasta sauce, or a set of saucepans, or fresh Italian cheese, or countless other items. For example, close to 70 percent of loyal Gap Online customers would also be willing to consider purchasing furniture from the Gap. Since stable businesses likely want to have several profitable lines of revenue, rather than a single “hero product,” cross-selling matters.
#4. It costs less to deal with existing customers
Again, you don’t JUST want to focus on repeat customers; but they certainly turn out to be a whole lot cheaper than focusing exclusively on new customers. It costs around 5x more to acquire new customers than it does to retain current ones. A mere 5 percent reduction in the defection rate of customers (i.e. the rate that they stop doing business with your company) can increase your profits by between 25 to 125 percent, industry depending. In an age in which it’s harder than ever to get eyeballs on a new product or service, existing customers can’t be underestimated. After all, you’ve got their attention. Now you just need to continue wowing them.
The importance of measurement
Of course, repeat customers don’t become repeat customers without some hard work. Businesses have to earn their repeat custom by providing them with a good service and valuing the fact that these customers come back time and time again. One way to measure whether a customer is happy with the service they’re receiving is through a Customer Satisfaction Score (CSAT), a metric businesses can use to gain an understanding of how customers experience their interaction with a particular business. It reflects everything from customer service to product quality. Consider measurement tools like this to be essential.
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