5 Reasons Why Loyal Customers are
Important to Profitability

by James on March 19, 2009

Customer Relationship Marketing is a common subject on Hipkin’s Hip Shots. I write about it a lot because loyal customers are one of the most important and least understood opportunities for business success.

We all know the famous line that says keeping customers is less expensive than getting them, it is, and, at least intellectually, we understand how painful attrition is to profitability, even if we can’t effectively measure it. Well worn, well accepted truisms. So, why doesn’t your marketing plan include a CRM strategy?

Here are five reasons why loyal customers are your most important profit drivers:

  1. Keeping them longer, especially your best customers, allows you to recoup your acquisition cost and generate a positive ROI. The longer you keep them the more positive your ROI.
  2. Loyal customers are more likely to buy more things from you. They don’t have to be sold as hard because they understand your value proposition and, since they have a relationship with you, they are more likely to see your marketing, which increases revenue and profit, and reduces acquisition cost.
  3. Loyal customers will pay a higher price. They understand your product and see its value. You don’t have to bribe them to buy again. This further improves the profitability of loyal customers.
  4. With loyalty comes experience and with experience using your product or service they need less hand holding, make fewer calls to your call center, and require fewer visits from the sales rep. All this reduces your cost, which improves profitability.
  5. Now here comes the kicker, loyal customers are much more likely to be advocates. They will happily tell their friends and associates about your product. This brings in more revenue with limited to no acquisition cost.

I first learned about this concept, I call it the profit fan, from Fred Reichheld’s excellent book, The Loyalty Effect. If you haven’t read it I strongly recommend you do. If you have read it, you should read it again.

Hip Shots

  • Include a CRM strategy and budget in your marketing plan. Have a clear understanding of objectives and strategies, and assign the required resources for effective Relationship Marketing.
  • Identify your best customers. Understand what they see in your product and how they view the category you compete in.
  • Find out what they’re are worth, strive to make them even more profitable. Determine CRM tactics and set budgets based on customer lifetime value.
  • Test and measure, and then test some more. Customer Relationship Marketing isn’t easy. Getting good at it is an iterative process that will, like all worthwhile pursuits, take time. But with patience, the ROI is spectacular.

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