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Beyond Niche Marketing

Beyond Niche Marketing

Get more customers. Grow your business.

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The importance of customer retention

November 27, 2009 by Kathryn Hendershot 28 Comments

Niche marketing is an incredibly effective advertising strategy for small businesses.   Because it’s so effective, you shouldn’t spend a PENNY on niche marketing until your current customers are happy.  I can’t overstate the importance of customer satisfaction’s role in marketing.

Don't spend a penny on marketing until you are delighting your current customers.
Photo by Andre Hunter

Let’s start with the basics.  Advertising is an invitation to visit your business.  The worst thing you can do is launch a successful advertising campaign when your customer retention is dismal.

My mentor once told me that happy customers tell three other people about a business. She also said an unhappy customer will tell 15.  This advice came long before the days of social media.  These days, you can count on unhappy customers telling AT LEAST 15 people, maybe more.

Launching a successful niche marketing campaign when you’re not satisfying your customers will only hasten the death of your business.

If your customer retention rate is dropping,  find and fix the problem before you spend another penny on advertising.

Niche Marketing Success Secret:

Niche Marketing Success Secret: A business without repeat customers won't be in business for long.

Long ago, salespeople went door to door selling encyclopedia sets.  It was an awful business model because it was a one time sale.  Once a family purchased an encyclopedia for their family, there wasn’t the need to ever buy another one.

Avoid this hidden business killer

There are two metrics you need to know to keep your business thriving.  These two metrics will help illustrate the importance of customer retention:

  1. your customer acquisition cost (CAC)
  2. your lifetime customer value (LCV)

Calculating Customer Acquisition Cost (CAC):

You can calculate your CAC by simply dividing the costs you spent acquiring more customers by the number of customers you got.

For example, if you spent $10,000 last month  on customer acquisition and you gained 10 new customers, your CAC is $1000.00 per customer.

Customer acquisition costs are rarely limited to just marketing and advertising expenditures.  However that’s all we’re going to focus upon here.

Calculating Lifetime Customer Value (LCV):

Calculating the Lifetime Customer Value (LCV) is a little more difficult.  You need to calculate how much you’ll make from that customer over the lifetime of your relationship.  First, you’ll need to determine how much your customers purchase on average during a specific time period.

So for example, you determine that your average customer spends $40 every week.  That’s the first metric we need.

Then you’ll need to determine how often your customers buy,  this is average purchase frequency.   In our case, our customer spends $40 every week with our business.

Now, we multiply the average customer purchase ($40) by how long we normally keep a customer.  Let’s say we keep a customer for 1 year.  Now, we multiply $40 (average weekly purchase) by 52 (weeks in the year) to get $2080 per year.

In this case, the LCV for our fictional business is $2080. Unfortunately, our fictional business is in trouble.  Their CAC is $1000 while their LCV is only $2080.   Our fictional business needs to:

  1. lower their CAC
  2. improve customer retention.

Customer Retention and Loyalty Pays Off

Focusing upon building customer loyalty and improving customer retention should ALWAYS be your top priority.
Photo by Vinicius “amnx” Amano

Focusing upon building customer loyalty and improving customer retention should ALWAYS be your top priority.

Selling to a repeat customer is ALWAYS more cost effective than selling to a new one. Repeat customers are already educated about the benefits of doing business with you.  This means you have a built in audience when you decide to offer more products and/or services.

However, selling existing customers more shouldn’t be the only reason you should focus upon customer retention.  Your existing customers can actually help reduce your CAC while improving your LCV.

Your existing customers can also be an incredibly cost effective Customer Acquisition tool.  This is commonly referred to as “word of mouth marketing.”   Word of mouth marketing can dramatically drop your CAC.  For example, I worked with a chiropractor who spent $2000 on a marketing campaign.  The campaign netted 27 new patients for the practice.  That means it cost $74 to acquire each new patient.

Here’s where things get interesting.   Over the next four weeks, the new patients referred 15 other new patients to the practice.

We need to adjust our calculations.  Now we’re looking at 42 new patients from the $1000 marketing campaign, dropping our cost per patient down to approximately $47 per patient.  As those patients refer other patients, the cost per patient cost will continue to drop.

However, your current customers can do even more to help build your business.  Your current HAPPY customers are a welcomed source of online reviews and testimonials.  (Needless to say, unhappy customers – not so much.)   Positive customer testimonials and online reviews are priceless because they help to build trust and reduce buyer resistance.

Word of Mouth Marketing

You can count on advertising to bring new customers to your business. Think of advertising as sending out invitations to your business. Be sure you are ready to delight anyone who responds to your invitation.

Investing in advertising when you aren’t able to keep the customers you have is a recipe for disaster.  Unfortunately, I’ve had business owners who hired me, hoping that they could “market” their way to profitability.  Building a business gets prohibitively expensive when you don’t have any word of mouth marketing working in your favor.

The first step to marketing a small business …

Identify your target audience.  The second step is to DELIGHT them when they choose your business.

Want to learn more… pick up a copy of Beyond the Niche: Essential Tools You Need to Create Marketing Messages that Deliver Results.

Filed Under: Beyond Marketing, Niche Marketing Tagged With: Advertising, Advertising 2.0, advertising and marketing for small business owners, advertising and the web, Affordable Small Business Marketing Strategies, niche marketing for small businesses

Reader Interactions

Comments

  1. Ross says

    January 21, 2010 at 5:42 am

    Kathy, I would Agree with 100% customer satisfaction is at an all time low. even more so face to face in my view. thanks for the wake up!

    Reply
  2. Office Supplies says

    August 12, 2010 at 8:34 pm

    Customer retention is essential to running a small to medium sized business. If your current customers are happy, they can recommend your business to others
    .-= Office Supplies´s last blog ..How would you advance online free expression =-.

    Reply
  3. Alex says

    November 23, 2017 at 7:26 pm

    Sometimes, I’m so busy trying to get new cusotmers, I lose track of trying to get the old ones to come back. Thanks for the reminder.

    Reply
  4. Yogi says

    November 12, 2020 at 12:34 pm

    Oh my goodness! an excellent article dude.

    Reply
  5. Lucile Roth says

    March 25, 2021 at 11:05 pm

    I truly love your blog.. Appreciate it!

    Reply
  6. JustinTeark says

    July 20, 2021 at 11:02 am

    great read

    Reply
  7. ShawnAspek says

    August 2, 2021 at 8:07 pm

    useful site

    Reply
  8. S Edwards says

    September 8, 2021 at 3:32 pm

    customers are important to my business

    Reply
  9. spislilA says

    September 9, 2021 at 7:47 pm

    Customers are the lifeblood of every business.

    Reply
  10. Briannit says

    September 10, 2021 at 1:02 am

    im using this in my business

    Reply
  11. Teslaslethy says

    September 13, 2021 at 6:21 pm

    very important topic.

    Reply
  12. J. A. C says

    September 14, 2021 at 5:02 pm

    You could certainly see your enthusiasm in the article you write.
    The world hopes for more passionate writers like you who aren’t afraid to mention how they believe.
    Always follow your heart.

    Reply
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    Reply
  14. esocriz says

    September 18, 2021 at 8:54 am

    i agree

    Reply
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    September 18, 2021 at 4:55 pm

    nicely done

    Reply
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    September 19, 2021 at 5:10 am

    great job. thanks for writing.

    Reply
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Trackbacks

  1. Social Media Marketing for Small Businesses - Beyond Niche Marketing says:
    March 11, 2022 at 2:26 pm

    […] Customer retention is a metric that is often overlooked.  I can’t overstate the importance of customer satisfaction’s role in marketing. Social media marketing can be a double edged sword. If you’ve got poor customer service, it could ignite word-of-mouth marketing in reverse. A dissatisfied customer with the gift of storytelling or song can tell literally millions of people about your terrible product/service if their effort is entertaining enough to go viral. […]

    Reply
  2. Customer Satisfaction and Marketing - Beyond Niche Marketing says:
    March 11, 2022 at 3:13 pm

    […] they’re not likely to stick around for long. Customer satisfaction plays a huge role in customer retention. That’s why it’s so important to make sure that your customers are satisfied with what […]

    Reply
  3. Word of Mouth Marketing - Beyond Niche Marketing says:
    April 14, 2022 at 11:24 am

    […] is why I say you shouldn’t spend a PENNY on advertising until your current customers are happy.  The importance of customer retention can’t be overstated.   Customer satisfaction plays a critical role in […]

    Reply

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Advertising Advertising 2.0 advertising and marketing for small business owners advertising and the web Advertising Effectiveness Affordable Small Business Marketing Strategies Beyond Marketing blog blogging and branding branding branding and entrepreneurs building trust business building business marketing strategies business owner creating a product for a niche audience customer's reasons for buying Customer Service free PR major sale marketing campaign marketing magic marketing messages marketing plan niche market Niche Marketing niche marketing for small businesses niche marketing strategy niche marketing wisdom PR small business small business advertising small business advertising solution small business marketing small business marketing consultant Small Business Marketing Strategies Small Business Marketing Success Online social marketing Social Media Marketing target audience the long term value of a customer transparency viral marketing word of mouth advertising word of mouth marketing

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