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The ROI of a Loyal Customer

Loyalty Marketing

I’m asked this question a lot: what’s the return on investment (ROI) of customer loyalty? It’s a good question, and one that’s not as straight-forward to answer as you might think.

The math is easier for customer acquisition costs and rewards.

1 customer > no customer

The ROI of a Loyal Customer image inventmentIt’s easy to claim: We’re winning! We’re winning! If we invest $5 in customer acquisition, and we get a customer for $9.99, then it’s easy to see we’ve doubled our investment. Yay, us!

Customer loyalty math is messy. It’s much more difficult to calculate, there is no easy formula for how to get to the right number, and it depends on factors that fluctuate, like discounts. The mistake, however, is ignoring customer loyalty. You see, even if determining customer lifetime value (CLV) is too daunting, you can get an idea of your customer churn rate. (For an excellent explanation and walk-through of CLV, check out this infographic from KISSMetrics.)

Churn is a little easier to digest. For the sake of simplicity: it’s literally the number of customers you acquire versus the ones you have that are walking out the door. If you gain 100 customers in a month, but during that same time you lose 30 active customers, then your churn rate is 30%.

Do you know your customer churn rate? Many business leaders don’t. Improving the customer experience starts with knowing where you stand. The churn rate can tell you at a glance if your customers are sticking with you or not.

If that isn’t a strong enough metric for you, then consider the bad word of mouth of customers who feel ignored, neglected and mistreated after giving you their loyalty. Take a gander at some of the vitriol reserved just for companies we loathe over at Pissed Consumer. Wow. You eat with that mouth!? ;-)

But retention strategies are so much more than email strategies. Your customers are not waiting for you. They are living their lives, and if you and your brand fit into that, great. If not, they are certainly willing to move on. In research from Google last year, they found 61% mobile users said that if they don’t find what they’re looking for (probably within about five seconds), they’ll click away to another site.

Poof.

Do you have a retention strategy? Are you measuring customer churn rate or CLV? Are you focusing on the touchpoints that can keep or scare off your customers? The ROI of a loyal customer is basically every profit you make. Consider that before investing even more in short-term acquisition strategies.

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  1. Amit Bivas says:

    Thanks Jeannie for this remarkable post. I couldn’t agree more about the high value a firm can get by having an efficient customer retention strategy. Various researches show that recruiting a new customer costs 5 to 10 times more than getting an existing one back from churn. Many marketers tend to put much more effort in getting new audiences, rather than retaining their existing ones. As said, retention strategies are much more than email strategies – they need to be focused, tailored for each and every customer, and based on the specific reasons that caused them to churn in first place. Today, as more and more providers understand the high value that can be gained by carrying out retention activities, there are many companies that offer a large variety of solutions to prevent churn and improve existing customers’ CLV. I’m a Data Scientist for optimove.com, where we offer a software tool that helps detecting customers before they churn, and by using a powerful segmentation model based on customer tendencies and preferences, it enables fitting an action to a specific customer’s needs. Putting effort in implementing a deep and efficient customer retention strategy, enables a firm to boost its CLV significantly and in short time!

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