Business is about two things –and two things only: how to win customers and how to keep customers. Period.

A lot of companies do a great job of acquiring customers, but a lot of those companies don’t have a clue as to how to keep customers. Increasing your customer retention rate is one of the easiest ways to sustain our trend of double-digit growth and even improve this growth.

When a customer leaves your dealership, it is like a tax on growth. Just as taxes cut the bottom line, customer defections come right off the top.

Suppose your company is growing by 20 percent per year. If you lose 15 percent of your existing customers each year, that means three quarters of your annual growth does nothing but replace the business you’re losing.

In effect, you’re working three quarters of the year just to make up the deficit; at the end of the year, your net growth is a measly 5 percent.

Case In Point:

Sprint PCS increased its customer base in 2002 by 1.1 million subscribers to 14.9 million, a gain of about 8 percent.
The company spent about $2.5 billion on sales, marketing, and equipment subsidies to achieve that growth, or about $2,200 for every customer gained – a lot of money considering that the average monthly bill is only $62.
By way of contrast, Nextel enlarged its subscriber base that year by 1.9 million customers – a handsome 22% increase—while spending $500 million less than Sprint on sales, marketing, and equipment subsidies.
Why the discrepancy? The answer is actually simple and explainable.
Sprint managed to lose 42% of its customer base in 2002.
In order to achieve 8% growth, it actually had to sign up 50 percent more customers.
Nextel also added 50% more customers, but because it lost only 27% of its customer base, it ended up with a much higher net growth rate.
Had Sprint PCS enjoyed the retention efficiencies of Nextel, it could have saved the extra $750 million it spent attracting replacement customers.

When a customer leaves your company, it is like a tax on growth. Replacing defected customers is costly and the only response that makes sense is to KEEP THE GROWTH YOU HAVE ALREADY EARNED by slowing the rate of defection.

About the Author

Myra Golden is one of the service industry's most prominent trainers and a highly regarded business growth strategist. Companies hire Myra and her team to help them build, recover, and strengthen customer relationships. She can be reached at 866-873-8419 or by email at myra@myragolden.com. She also has a website: www.myragolden.com.