What’s the return on investment (ROI) of a loyal customer?
People ask me this question all the time. It’s a great question, and the answer is not as straight-forward as you might think.
The equation is much simpler for customer acquisition expenses and returns.
1 customer > 0 customers
It’s easy to exclaim: We’re winning! We’re on top! If we invest $5.00 in customer acquisition, and we get a customer for $19.99, then it’s easy to see we’ve quadrupled our investment. Yay for us!
The mathematics behind customer loyalty is messy. It’s much more difficult to calculate, there is no simple equation for how to get a solid figure, and it depends on factors that fluctuate, such as discounts. The fatal error, however, occurs when we ignore customer loyalty. You see, even if calculating the customer lifetime value (CLV) is too daunting, you can get still get a good idea of your customer churn rate.
For an excellent explanation and walk-through of CLV, check out this infographic from KISSMetrics.
Keeping it real, churn-style
Churn is a little easier to digest. For the sake of keeping it simple: it’s literally the number of customers you acquire versus the ones you happen to be losing. If you gain 100 customers in a given month, but during that same month 30 active customers walk out on you, then your churn rate is 30%. Easy peasy.
Do you know what your own customer churn rate is? Sadly, many business leaders have no clue. Improving the experience you deliver to your customers starts with awareness of exactly where you stand. The churn rate can tell you at a glance if your customers are loyal or not.
If that metric isn't solid enough for you, then consider the negative word of mouth of customers who feel they've been taken for granted, neglected and treated poorly after being loyal to your brand. Take a peek at some of the vitriol reserved just for companies we loathe over at Pissed Consumer. O-M-G. You kiss your baby with that mouth!?
But customer retention strategies are so much more than marketing strategies. Your customers are not waiting around for you. They are going about their lives, and if you and your brand are a good fit for the way things are working out for them personally, great! If not, they are definitely willing to explore your competition. In a study from last year, Google found 61% mobile users said that if they don’t find what they need (probably within five seconds or so), they’ll navigate to another website.
Do you have a strategy for customer retention? Are you measuring customer churn rate or CLV? Are you focusing on the touchpoints that can help you keep your customers, as well as the ones that can scare them away? The ROI of a loyal customer is essentially every profit you make. Consider that before making more investments in short-term acquisition strategies.