The High Cost of Low Customer Retention

“Increasing customer retention rates by 5% increases profits by 25 to 95%.” –Harvard Business School

Maintaining high customer retention means more than giving your customers what they expect, but exceeding expectations. A focus on customer retention starts with the very first interaction your business or brand has with any one customer, and lasts for the lifetime of their relationship with your business. Whether that first impression is struck with a Yelp review, seeing a Facebook post, hearing a radio ad, word of mouth or walking into your front door on a whim, it is the business and its employees’ responsibility to make it a good one. From there, customer retention acts as a measurement of service quality and how loyal your customers are.

Many restaurants and small businesses spend a lot of time and money marketing to new clientele. New customers are always important, but keeping those you already have is less costly and more profitable.

Why is high customer retention so important for my bottom line?

Whether your business is located in a high tourist area or small town, loyal customers are a must-have. While repeat guests may only account for 15% of your customer base, they provide close to ⅓ of your revenue.

According to this study from Harvard Business School:

  • Acquir­ing new cus­tomers can cost as much as five times more than sat­is­fy­ing and retain­ing cur­rent customers
  • A 2% increase in cus­tomer reten­tion has the same effect as decreas­ing costs by 10%
  • Increasing customer retention rates by 5% increases profits by 25 to 95%
  • Cus­tomer prof­itabil­ity tends to increase over the life of a retained customer

How do I measure customer retention?

While some restaurants use punch cards or other stand-alone loyalty programs to measure retention, this is a clumsy and often ineffective solution. Using an mPOS system like Instore will allow you to monitor a specific customer’s frequency of visits tied to his use of a specific credit card. Encourage the customer to use the same card on each visit to be eligible for loyalty rewards, such as a cash discount after spending a certain dollar amount. Even better, such platforms can also help you see everything the customer has purchased in the past and what times of day he visits your restaurant, so you can get a better perspective on how to market to him.

It’s low hanging fruit. How can I increase customer retention?

Get this – 80% of your future profits will come from just 20% of your current client base. So really, the source of those profits are sitting right under your nose.

  1. Work hard to provide killer customer service. Good product and a clean restaurant go really far in creating loyal repeat customers, but customer service and the relationship your guests have with your staff is the most important factor.
  2. Be proac­tive! Research your com­peti­tors to com­pare pric­ing and mar­ket­ing strategy.
  3. Talk to your employ­ees. Your front line rep­re­sen­ta­tives will have great insights into cus­tomer needs and wants.
  4. Talk to your cus­tomers. No one knows bet­ter than your cus­tomers. Sur­vey new cus­tomers and repeat cus­tomers to con­firm your processes are effective.
  5. Make the most of technology tools to monitor customer engagement and reward loyal customers based on certain milestones.

Investments in customer retention can take time to mature, but that time and money is almost always worth it. Plus, these efforts lend themselves to the overall goal of running a good business that the ownership, staff and customers can all be proud of.

Image Credit: jbloom. Licensed Under CC BY 2.0.