Keep them coming back Featured

9:51am EDT July 22, 2002

Keeping customers is a key success factor for any business, because the actual value of a business is often determined by the future cash flow of existing customers. But that same cash flow provides the financing for the investment in finding new customers, and most other needs of the business.

To meet your business’s goals, you probably have a mental picture of what activities and processes will maximize customer retention and profits. And if you believe there is a “right way” for your business to retain customers, why not define your best practices just as you would for accounting or manufacturing?

Here are easy six steps to lead your customers through the retention sales funnel:

Define your new buyer’s bonding process

Determine how your new buyer will gain confidence, recognize value and build a continuing relationship with your business. That will help you clarify your understanding of your buyer’s behavior until you have it down cold. Then, by examining your previous successes with first time buyers who became great customers, a pattern will emerge.

Outline your company’s best way for keeping customers

From the moment you land a first time buyer, exactly what happens as you proceed to retain him or her?

When do you use customer service, sales, telemarketing and the Internet? Is there a best way for your business to do this or is it always a random act?

Try to identify the three most likely sequences that result in keeping customers.

Create definitions for your funnel

With this wealth of raw data, now it is time to bring some structure to the picture. Using the funnel in Figure 1, define each stage of the funnel for your business, from your one time to your closed customer.

Typically a one-time buyer is someone who is testing a larger relationship with your business. You have offered, or they have picked, a single product or service that allows them a low risk method to sample your firm and its capability to deliver on its promises.

A win back buyer is similar to a one-time buyer, although they have a previous, probably negative, experience with your firm. Often these “damaged” buyers, if “repaired,” are the best candidates for becoming stable customers.

A reorder buyer is someone who has made a passive decision to repeat his or her initial decision to work with you. They may not have had a great initial experience, but their expectations were met. While they are not yet loyal, they see potential for this.

Determine how many new buyers you need at each step of the funnel.

To start, divide your average sale from a stable customer into your sales goal from retained customers. This gives you the number of stable customers you must land. Then move up the funnel and decide how many buyers you must attract at each step. If you need to qualify two reordering customers for each kept customer you create, then plan to do so.

Understand what your customers are worth and what you can spend to get them.

Now that you know how many customers you need to meet your goal, decide what your one-time buyers are worth to you:

a) Divide the number of one-time buyers it takes to create a stable customer into the value of a stable customer. For example, if a stable customer sale is worth $4,000 and you need four first-time buyers to create a stable customer, then a first time buyer generates $1,000 of revenue.

b) If you must spend $100 to create those four one-time buyers, then each prospect costs $25.

c) By subtracting the cost of a first-time buyer, $25, from the revenue of a prospect, $1000, you have $975, the real value of a prospect.

This exercise is critical as it gives you a benchmark of what to invest in a first time buyer and what to expect in return. Don’t overdeliver on service, instead, set and agree on a level of service and provide what is expected. If you follow this rule of thumb, you will now have a budget and confidence to spend just enough to obtain your stable customers and maximize your profits.

Create stable customers effectively.

With financial guidelines for keeping customers in place, now choose your tactics. Pick your sales, marketing and customer service activities for each step of the retention funnel. For example, you may want to use seminars to create stable customers, but may choose to emphasize customer service over sales reps to create reordering customers. You can evaluate your activities, tools, and programs based on how cost-effectively they deliver the number of stable customers you need. Your choices will be easier and less risky than ever, because they will be based on meeting your goals you have set. Andy Birol is president of PACER Associates, which works with companies who need to focus on their best ways to find, keep and grow more customers. It helps businesses that sell their expertise or market a customized product to other businesses.