Creating a perfect customer retention optimum is one of the most critical challenges facing businesses today. From Fortune 500 companies to mom-and-pop storefronts, profits and profitability depend on the ability to create and keep customers for life.

The reasoning for this is very simple: Marketing is difficult and expensive.

It costs money to generate leads, create a recognizable brand, and get customers to make an initial purchase. Without customer retention, that time and money are wasted, constantly flowing out with only occasional purchases to provide some income.

Retention, on the other side, puts those marketing investments to use and helps build momentum through that customer and every other person they tell about their experience. Striking this balance is considered the customer retention optimum. 

Why It Matters

Marketing can feel like a very personal endeavor. As a business owner, you invest time, money, and energy into strategies and campaigns geared toward attracting new clients and introducing them to your brand. What many businesses don’t realize is that the most important part of marketing comes after the first sale, when the focus switches to reducing churn and maximizing the customer retention optimum.

Retention Is Affordable. 

Research has shown that it’s up to 7 times more expensive to attract a new customer than it is to retain an existing one. When you’re a small business deciding where to allocate your marketing budget, this data matters. 

The reason establishing a customer retention optimum is more cost-effective is that customers are more likely to buy again from a brand they’ve had a good experience with. So, once a customer buys from you, their value increases exponentially because they no longer represent just one sale but the potential to generate more revenue than someone who has never shopped with you before. 

The key here is “buy again from a brand they’ve had a good experience with,” and it’s also part of the reason why retention is cheaper than sourcing new customers. You can either dump thousands of dollars into ads, content, and strategies that might convince a stranger to leave their preferred brand to shop with you, or you can shift your attention to improving the customer experience you already have. 

ROI

If you can master your customer retention optimum and increase retention rates by just 5%, you’re looking at a potential revenue growth of 25%–95%. The reason is that customers who love a brand don’t just shop from it one time. Instead, they shop there dozens (or, if you’re really lucky, hundreds!) of times. 

Think about your favorite clothing store — how many times have you shopped there? There’s a reason you’ve stuck with this establishment for so long, and it probably has nothing to do with their product selection. It’s unlikely you love every piece of clothing that the store offers. You stay with this brand because you enjoy the experience of doing business with the company, and because of that, you’ve brought in thousands of dollars in revenue over an incredibly long period of time, so the return on making you a loyal customer has been huge. 

That is the customer retention optimum: creating circumstances so special that patrons stay (and spend) with you for years to come.

Monetary Value Of Return Customers

By focusing on repeat business, many companies are catching on to a retention strategy that promises to build momentum with current customers instead of chasing after the elusive first sale.

A positive relationship with customers is one of the most cost-effective strategies that your business can have. It is a fact of life that consumers prefer to do business with people they like and trust, and this likeability is even more influential than the cost of a product.

70% of Americans have reported spending extra money to purchase from businesses that offer great customer service. This is because the average customer’s focus has shifted from price to value. Value includes the price of the item as well as the perceived value of the entire shopping experience. This is extremely important when it comes to your profit margins because it directly implies that a strong customer retention rate would allow you to charge more than your competitors without risking the loss of customers.

This level of customer loyalty is created by the customer service and positive interactions your customer experiences after the initial sale. Undoubtedly, the quality of your customer service is measured by the kind of relationship that you establish with customers, and that relationship will determine how invested they are in your success. Evidence of this comes from research that shows happy customers are more likely to make repeat purchases and recommend your company to friends and family.

According to the marketing experts at Branderati, on average, happy customers (aka brand advocates) spend twice as much as the average customer with their preferred businesses. They are also more likely to spread the word about their experiences, which is invaluable because Branderati also found that marketing-induced, consumer-to-consumer word-of-mouth recommendations generate more than double the sales of paid advertising. This has the power to become a huge portion of your annual income, dramatically reducing your customer acquisition costs and increasing your sales.

Value Of Loyal Customers

Beyond the cash value generated by repeat customers, there are social benefits to having a loyal following. The first is the power of brand advocates and referrals; once customers become loyal to your brand, they are much more likely to come back to you for their large purchases and recommend your business to friends and family members. This is the main reason why a focus on your customer retention optimum can create brand advocates and allow them to boost your referrals.

The social benefits of customer retention are perfectly illustrated by one of our former clients, Shane Smith. Mr. Smith is the head of a large and widely successful personal injury law firm in Atlanta, Georgia. A few years ago, the firm was doing well, with several lawyers managing and winning a high volume of cases and clients for the firm every year. Despite this success, they were getting nearly zero referrals from all of those satisfied clients.

Smith was puzzled; they were doing great work, treating clients well, and winning a majority of their cases, yet their retention and referrals were almost nonexistent. This lack of business from past clients was resulting in a very serious loss of cash flow for the firm. In order to figure out what was going wrong, Smith decided to personally call clients he had helped over the past year and ask them where the disconnect was.

Of the 100 people Shane called, virtually zero remembered him. In fact, most of them thought he was trying to solicit business from them. Shane had won a $100,000 settlement for one of these clients less than a year before, and even that customer hung up on Shane before he had the chance to explain himself. There was no bad blood from any of the clients — they simply couldn’t remember who in the world Shane Smith was.

Smith is a smart guy, so it didn’t take long for him to wonder how clients could possibly refer friends to a practice they couldn’t remember. At the end of this report, we’ll let you know what he did to make his business more memorable, thereby generating hundreds of referrals.

Encourage Word Of Mouth.

It only makes sense that customers have to remember your brand in order to promote it. On top of that, if they have a “wow” experience, they are much more likely to buy from you and refer their friends and family.

In 2014, brand advocacy and word-of-mouth marketing were identified by Forbes contributor Kimberly Whitler as the most valuable forms of marketing. Why? Because in a new study by Ogilvy, Google, and TNS, 74% of all consumers say that the opinions of family and friends are a key influencer in their decision-making. And once consumers get a recommendation from someone they trust, they are far more likely to become loyal customers as well.

Another study found that referred customers are 18% less likely to churn, even in the case of a negative experience, and have approximately 25% higher lifetime values than non-referred customers.

This means that happy customers are spending more, referring more, and staying longer, which may be why a study by Bain & Company found that increasing customer retention rates by just 5% increases profits anywhere from 25%–95%. Branderati supports this research; they found that customers referred by other customers boast a 37% higher retention rate than the average consumer.

Common Barriers To Retention

Due to the monetary value and social benefits of retention, it is important to understand exactly why customers stray. That understanding comes from learning about customer preferences and the factors that cause them to churn. Churn is one of the most devastating factors affecting profitability because it marks a loss of the investment that it took to attract each customer who is walking out the door in addition to the loss of potential sales and referrals.

Even a 5% monthly churn rate means a 60% loss of customers over the course of the year. That statistic alone is scary enough, but the Office of Consumer Affairs found that a customer that churns because of customer service issues will tell 9–15 people about their negative experience. Imagine if 60% of your customers were telling 9–15 of their friends about bad service they had received with your company. The numbers add up quickly, and it’s clear to see why it’s so important to learn why people churn and how to minimize it.

Lack Of Relationships

When it comes to churn prevention, the effect of consumer-business relationships is truly astounding. According to the churn-specialist company Preact, the second biggest factor affecting customer loss is ineffective relationship building. Relationship building can encompass many different things, but the most notable is the customer’s perception of their own importance to the company. They want exceptional customer service, appreciation, and a personal touch that helps them connect on a deeper level than your average business interaction.

Human beings are social creatures, and as the amount of our daily interpersonal interactions has shrunk, our desire for connection has grown. This has resulted in an incredible opportunity for business owners to close the gap, provide connection, and make a notable impact on their customer base. When they neglect these needs, the lack of a relationship with customers can leave businesses vulnerable to price wars, economic downturn, and competition. That’s because relationships and satisfaction are noted as the most important deciding factors when it comes to whether a customer will stay with your company or consider your competitors.

Undoubtedly, the quality of your customer service is measured by the kind of relationship that you establish with customers, and that relationship will determine how invested they are in your success.

Relationships also help minimize the occurrence of passive churn. Passive churn occurs when customers fail to continue services without actively deciding to leave the company. One example of this is simply forgetting their options when it comes time to make a purchase.

A client of ours experienced this unfortunate type of churn through a decade-long misunderstanding with one of his clients. Jim Hoey is the president of SST, a telecommunications company that provides phone systems for business offices. His products are high quality and require a hearty investment, which means that he may only resell to the same client once every couple of years. Because of that slow sales cycle, Jim struggled with memorability, even after providing a true “wow” experience.

One day he got a frantic call from a client that their office had caught on fire, and they needed a new phone system immediately in order to keep their business alive. Jim leaped into action, giving the client the phone system from his own office and even setting it up that day so the client wouldn’t lose any business.

Because his phone systems are such high quality, Jim didn’t hear anything from that client for a few years. Then, one day, Jim got a call saying that the office had purchased new phones and that he could come pick up his old ones. The problem with this picture is that Jim’s client had purchased a new phone system from a different company — even after Jim had done everything right to provide them with a wow experience. What was his mistake? Neglecting the relationship with that customer and trusting that they would remember his good deed after years of change within their office.

Industries that only see customers a few times a year (or even every few years) are especially susceptible to passive churn because customers may simply forget about their previous positive experiences. By connecting with consumers on a personal level, a consistent relationship serves as a foundation for memorability and staying top of mind.

Customer Service Is King.

In order to build relationships, encourage brand advocacy, and create lifelong customers, it is essential that businesses provide exceptional customer service. Looking through retention literature, it’s difficult to find a list of marketing statistics that don’t name bad customer service as the #1 problem leading to dissatisfaction and churn. One Bain & Company study even found that a customer is 4 times more likely to defect to a competitor if the problem is service-related than price or product-related.

This study shows that commerce has become so much more than exchanging X for Y. Consumers now feel emotionally invested in their buying decisions, products, and brands they choose. While this provides an opportunity for businesses to foster connections, it can also be a double-edged sword. If customers feel ignored, mistreated, or generally dissatisfied, they are considerably more likely to take their business elsewhere, regardless of the quality of the product.

The international management and consulting firm McKinsey found that customers’ emotions drive their decisions, and those emotions are strongly affected by their personal interactions with a business. McKinsey discovered that when an emotionally charged interaction was resolved positively, 85% of customers increased their value to the company. Equally important is the fact that when those interactions were mishandled, more than 70% of customers reduced their commitment and investment in the business.  

It’s incredible to think that our relationships play such an important role in retention, but more and more research is proving that they are the single most influential factor in choosing a business. An American Express Survey even discovered that 3 out of 5 customers would give up buying from a favorite brand in order to have a better service experience. This clearly indicates that experience outweighs pricing and even personal preference, but what else is causing customers to stray?

The Technological Catch

It is clear that customer service is a major cause of churn, but it is not the only reason. While technology has paved the way for cheap marketing and easy access to consumers, it has become a catch-22 when it comes to relationship building. The constant stream of advertisements, emails, notifications, and attention-getters has numbed many consumers to the effects of electronic marketing. Not to mention the web has given anyone with an internet connection the same sphere of influence as academics, professionals, and experts, resulting in a general distrust of information online.

Email and social media have taken the brunt of this desensitization, as evidenced by the Epsilon Email Marketing Research Center’s finding that business emails in the United States have an average open rate of only 21.6%. Once those emails are opened, the click rates are even more sobering — a measly 4%.

So while technology has quickly become a preferred method of communication and advertising for many businesses, it has actually reduced our interpersonal relationships and ability to remain responsive. Instead of enabling interactions, people are engaging less, and businesses are starting to suffer the consequences. The aforementioned research and other studies suggest that the internet has become a dangerous place for marketers, where under-exposure leads to apathy and overexposure leads to disengagement.

How You Can Improve Retention

One way to change that mindset is to liken your customer retention optimum to creating a support network. Back in 2005, Entrepreneur posted an article called “5 Key Ways to Build Customer Relationships.” In this article, the author compares marketing to pushing a boulder uphill — you can either do it yourself, or you can recruit an army of enthusiastic customers to help you push your product to the top. The way you accomplish this is by building relationships with everyone you do business with and ensuring that their experience keeps them buzzing about your company.

The boulder metaphor is a great example because it really embodies the physical and emotional struggle of sales and marketing, which can sometimes feel like an uphill battle. It also shows how a strong relationship with customers can become a sales lifeline through retention and referrals.

Entrepreneur’s article puts it best when it says, “How do you turn networks of contacts into customers? Not by hoping they’ll remember meeting you 6 months ago at that networking event. Networking is a long-term investment. Do it right by adding value to the relationship, and that contact you just made can really pay off. Communicate like your business’s life depends on it (hint: And it does!).”

There is no simple equation for making customers stay, but there are several strategies businesses can focus on to minimize their churn rates, increase their retention value, and boost referrals. Retention involves changing the marketing mindset from short-sighted acquisition (focused on the one-time sale) towards a customer retention optimum, which measures the CLV (customer lifetime value) and potential profit as a whole.

Build Relationships That Matter: Personal, Professional, Powerful

Remember Shane Smith from earlier? He was the lawyer who was struggling to create relationships with his clients, and his business was suffering as a result. After calling 100 previous clients and realizing that no one knew his name, he decided to try mailing a monthly newsletter.

Within 6 months, his newsletter campaign was boasting the highest ROI of any of his marketing strategies. He was getting dozens of referrals per month and maintaining a good relationship with all of his previous clients. Business boomed, new cases started flooding in, and Shane became a celebrity in the world of personal injury attorneys. He jokingly admitted that he even had issues walking his dog, Gizmo, down the street because an article in the newsletter written in Gizmo’s voice had made the pup more popular than Shane himself.

The goal of achieving personal, professional, and powerful relationships is so important that we made it our purpose here at Newsletter Pro. We know that a lack of relationships is one of the major causes of churn and that the solution lies in a more personal connection.

The internet has provided consumers with more options than ever before, so it falls on business owners to stand out — in a good way. The best way to do that is to let customers see the people behind the brand. You can do that by becoming high-touch over high-tech. Exceptional customer service, likability, and loyalty all play into the central theme of relationship building, which often takes repeated exposure to a brand over time.

Stop Forcing The Sale.

It sounds counterintuitive, but one of the best ways to make a sale is to stop focusing on income and start thinking about your impact. Take a break from the sales pitch and focus on helping your customer; they are much more likely to be a loyal brand advocate if you make a difference in their life rather than just a dent in their wallet.

This is partially due to a psychological principle known as reciprocity, which basically states that we are hardwired to return favors after they have been done for us. In the business world, this translates into brand advocates and customer loyalty in exchange for exceptional care and service.

One of the most interesting research studies proving this effect was done in 1974 by the sociologist Phillip Kunz. Kunz mailed out handwritten Christmas cards with a note and a picture of him with his family to approximately 600 strangers who were chosen at random. Interestingly enough, even though people had no idea who Phillip Kunz was, he received nearly 200 replies. This one experiment led to dozens of marketing tactics that played on people’s inherent desire for reciprocity.

The free mint with your check at a restaurant? Found to increase tips up to 20%. The free mailing labels sent out by the Disabled American Veterans Charity? Responsible for nearly doubling the number of people who decided to contribute to the cause — from 18% to 35%. All of these studies show that people are programmed to want some kind of relationship with the people they do business with.

Whether it be through thoughtful gestures (like the free gifts) or exceptional customer service, the point is that people love to be appreciated, and they feel obligated to return the favor.

So instead of going in with the goal of making money, go into every transaction wondering what you can do to improve that customer’s life, change their day, or make something easier for them. This is one of the key ways to ensure that customer service goes beyond the sale, and it also improves your chances of transitioning prospects into customers because it allows you to invest in people even before they generate income.

Bring On The Case Studies.

Very often, new customers have no idea how you conduct business, and taking the risk of spending money to find out is not something many people are willing to do. So, the easy way to show them without forcing them to spend is to provide examples of the other times you’ve made customers just like them happy. 

The idea behind providing case studies is to allow customers to get a taste of the experience of dealing with you, without the risk. 

But case studies are beneficial to existing customers and help perfect your customer retention optimum. This is because it’s likely that your customers haven’t explored every part of your business, and there are still services they can be sold on or convinced to try. A case study reminds them about what makes doing business with you so special and provides them evidence that continued business with your brand is not only pleasant but also valuable to them as a consumer.

Establish Expectations.

The most straightforward way to nail your customer retention optimum is by setting expectations between your business and your customers with the first interaction. 

Your customers are coming from all different perspectives and likely had a brand before yours that they were loyal to. Some customers may think your prices are high and maybe expect some special treatment as a result, like monthly sales or email discounts. While other customers may expect your brand to show up for causes they care about if you include them in a mission statement. 

The best thing to do is establish what you’re able to offer early, so there’s no confusion and subsequent disappointment when customers don’t receive something they thought they were promised. 

If you only offer standard shipping, establish that clearly on your checkout page. Or, if you tell people to sign up for your email newsletter for exclusive offers, let them know how often they can expect to receive them. 

You want to imagine the shopping experience from your customer’s point of view and understand that the more clearly you’re able to communicate with them what they can expect, the happier they’ll be and the longer they’ll retain. 

Ask For Feedback. 

If you’re looking to improve your customer retention optimum, it’s important to find out why exactly customers are leaving your company in the first place. Once you understand what’s causing them to leave, you can target those spots to prevent churn. And the best way to find out why customers leave is to ask! 

You can have your customer service team reach out to existing customers and ask what they think about different aspects of your business, from the checkout process to returns, and customer service interactions. You can track these responses over time and pinpoint the areas where customers feel you’re falling short. The great thing about asking for feedback is that it allows you to see where your current customers stand with retention, and if they’re pointing to something they don’t like, it’s a great opportunity to fix the issue before they decide to leave. 

No one knows what your customers are looking for better than, well, your customers! The customer experience is something only the customer knows, including when they feel like your brand isn’t meeting their expectations and it’s time to leave. 

Try Reciprocity.

The biggest part of your customer retention optimum is fostering loyalty in your customer base. When they see marketing from other companies, you want them to turn a blind eye because they know there’s no way they can compete with you. 

Reciprocity is a proven way to bolster your customer loyalty because it shows your customers you care about them more than their money and instills the urge to repay that kindness to you through their patronage. When it comes to reciprocity and customer loyalty, two types work: surprise reciprocity and trumpeted reciprocity. 

Surprise reciprocity is when a company offers a customer a gift without any warning and for seemingly no reason at all. 

Trumpeted reciprocity is when the company makes the customer aware of just how special the offer they’re giving them is. The goal is to make it obvious to the customer that the gift they’re receiving is a big deal and not something your brand does for everyone (even if you do). 

Reciprocity can be something as simple as a special discount code or a free gift with a purchase; the goal is to give your customers something they’d love for their admiration and patronage in the future. 

Direct Is Best.

The big question is how to implement all of these things. The simple answer is direct mail. That’s because while society has evolved to the digital age, our brain has not. We are biologically and socially programmed to appreciate physical mail, which is why it has remained the most effective long-term marketing strategy.

Direct mail is 6 times more effective than all digital channels combined, according to the Direct Marketing Association Response Rate Report 2015. It sounds too good to be true, but it’s hard to argue with the numbers.

And while over-exposure through email has actually been shown to detract from a brand’s image, monthly mailers are the perfect, consistent advertising strategy that can help set that psychological hook. Epsilon Targeting, a world-class marketing and surveying firm, found that consumers overwhelmingly prefer direct mail to other marketing tactics such as email. In fact, their survey found that 73% of consumers reported deleting emails without ever opening them. Coincidentally, when asked why they chose mailbox over inbox, 73% also said that they preferred physical mail because they can read the info when it is convenient.

This preference for convenient access leads to a longer shelf life and one other essential attribute: In the Epsilon survey, 40% of consumers reported that they preferred direct mail because they could easily transport the information to different places.

What you should be reading between the lines of this report is this:

With direct mail, people are MUCH more likely to read the information you are sending them.

People actually enjoy reading their direct mail (according to 59% of respondents), and they refer back to it for additional information. Your readers enjoy their direct mail so much that 40%want to take it with them and potentially share it with other people.

Evidence Of Success

Direct mail has been the go-to method of marketing since the invention of the written word. Over the past few years, marketing firms have been researching the cause of this success and trying to figure out why direct mail has such tremendous staying power.

GKIC co-founder Dan Kennedy is quoted as saying, “I am here to assert that NOTHING ELSE can deliver the riches that direct mail can and does when it is fully understood and properly deployed.” He also says “wealth is tied to postage stamps” and that his own personal wealth is firmly rooted in, and built on, direct mail.

(Case Study) Direct Mail Is Alive and Well.

As competition in the electronics market grew, Sony found that its sales were dropping and advertisements were bringing in fewer and fewer new customers. In a move of marketing genius, they realized that striking their customer retention optimum would be the best way to increase revenue and strengthen the brand. The trick would be to encourage customers, who had already made a large purchase, to make another purchase in a short period of time while still maintaining a positive relationship with the brand. They decided to try direct mail, with an audacious goal to increase revenue on these repeat sales by 20% within 90 days.

To accomplish this feat, they sent a customized postcard out to customers within 2 weeks of a purchase. The mailer thanked them by name, referenced the product they bought, and offered a discount of 10% off the purchase of a DVD player. Two weeks later, a second postcard offered a discount on a television. This strategy was cheap and easy, and the results exceeded Sony’s most optimistic calculations.

The revenue per thousand pieces was 4 times that of electronic campaigns, and the ROI was 4 times the company’s threshold. Remember that goal of a 20% increase? By the end of the campaign, Sony accomplished a 145% increase in repeat sales. The best part is that they meticulously tracked the campaign analytics and found that this growth was a direct result of the mail campaign.

Sony’s marketing venture proves that these same traits can be applied for marketing success by implementing a direct mail campaign focused on their customer retention optimum and brand building.

Through extensive research and analysis, we have discovered that the key to a customer retention optimum is to build relationships with meaning beyond the business transaction. Our research has also shown that direct mail is the best way to achieve that strategy by providing customers with a consistent and friendly way to connect with businesses on a regular basis.

By utilizing a direct mail campaign, businesses have found tremendous success in increasing their retention rates, referrals, and, as a result, the overall lifetime value of clients. These mailers also provide businesses with a tremendous opportunity to build their brand, increase customer satisfaction, and distinguish themselves in an increasingly competitive market.

To learn more on this subject, you can fill out the form below to download your free copy of our Retention Guide.