Reichheld demonstrated that customers are more
profitable over time. In fact, he found that a 5%
increase in retention could increase profits from 25
to 125%!* He showed how it takes time to offset
the marketing costs to acquire new customers
–
and
how keeping them accelerates profit growth with:
more and larger purchases, reduced operating
costs, referrals, and willingness to pay a price
premium (due to proven value). Quite simply, even
a high growth rate with high customer turnover
means your growth and profits could be
exponentially greater by satisfying customers so
much that they won’t go anywhere
else
–
and won’t
tell others to follow when leaving you in the first place.
Reichheld also
observed if we
“…Imagine two companies, one with customer retention of 95%, the
other with 90%. The ‘leak’ in the first is 5%, the second, 10%.
If both acquire 10% more customers each year… over 14 years, the
first will double in size, but the second will have no real
growth at all.”**
By ensuring
loyalty, you
invest
every marketing dollar in growth, because you
close the
“holes in the bucket”
and stop having to
replace lost customers with new ones just to stay even!
*Harvard Business Review, Sept-Oct 1990.
**Frederick F. Reichheld, The Loyalty Effect, (Bain & Company, Harvard Business
School Press, Boston 1996).
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