Customer Loyalty Profits

The more loyal your customer, the bigger your profits

Developing customer loyalty is and always will be a long-term strategy. The more loyal your customer is, the more profit a business can gain from a single customer.

This is particularly true in industries such as finance, insurance or any form of credit.

Reducing defections by as little as 5 percent in these industries can boost profits anywhere between 25-85 Percent (Source: Zero Defections: Quality Comes to Services, Frederich F. Reicheld and W. Earl Sasser, 1990).

Which makes complete sense when we’re talking about refinancing or extending the term of your insurance contract.

But the same applies to other industries too, auto servicing for example. Where, put simply, the more loyal the customer (greater the retention rate), the higher the profits.

For example,

A car dealership spends $51 to acquire a new customer. The person services their car initially, but the profit ratio is minimal if you factor in overheads on a $220 average transaction. But a second-year customer is different, provided minimal costs were spent to retain that customer. The balance and therefore the profit ratio grows on the original $51 to acquire the new customer. The reasons for developing a loyal customer base is simply put down to a greater profit ratio.

Reasons to develop a loyal customer base:
  • A greater profit ratio
  • Sales typically increase, because your customer a repeat buyer
  • You strengthen your position in the market, by acquiring a greater share of customer (don’t be confused with market share). A repeat sale is one less sale for your competitor.
  • Your marketing costs typically decrease over time when you don’t need to spend money attracting a repeat customer.
  • You’re better positioned to deflect pricing competition because your customer base is loyal to you and is purchasing based on more reasons that just price.
  • You’re less likely to create a price sensitive buyer

If you’d like to start focusing on a customer loyalty driven strategy, by utilising cloud technology, then get started with Goody today.