Brown Dog CRM Consulting, Carol Smock    
"unleash the power of customer loyalty"    

New! Customer Relationship Management for Small Businesses

By Carol A. Smock, Brown Dog CRM
“Creating Customer Loyalty”

Customer Relationship Management (CRM) is the enterprise-wide effort of providing your customer what they want, when they want it and how they want it.  Larger organizations use technology to make this happen which causes smaller businesses to assume they can’t execute CRM since they can’t typically justify the investment in said technology.  I challenge you…  CRM is as much a “state of mind” as it is a technology solution.  In fact, CRM is executable without expensive technology.

Let’s first define the term customer.  It’s important to understand that a customer can be called a donor, a member, a client, an alumnus, a volunteer or a consumer.  Customer Relationship Management can and must be applied in all circumstances.

Most businesses spend a great deal of effort working on plans and promotions to acquire new customers.  They know that in order to grow they need to see an increase in traffic (customers) spending money in their establishment.  The ultra-savvy business-owner already knows that if they spend some of those acquisition dollars working to increase the spending rate of their existing customer-base and to ensure a higher percentage of their customer-base returns next year – they are ahead of the game and don’t have to work quite as hard or spend as much money to generate higher revenues each year.  Each percentage of Customer Retention equates to a dollar-figure that directly affects the bottom line.

Chart A

Total Revenue

Total Customers

Average spend / Customer

Customers Lost

Revenue Loss

Retention %

$1,000,000

5000

$200

1000 (20%)

$200,000

80%

$1,000,000

5000

$200

900 (18%)

$180,000

82%

$1,000,000

5000

$200

500 (10%)

$100,000

90%

Chart A demonstrates the potential lost revenue that must be replaced each year as a business loses 10-20% of its customer-base.  But, how much does it cost to go find 500, 900 or 1000 new customers?  In some industries (like retail stores) it can require spending tens of thousands of dollars on advertising.  That cost can greatly outweigh the benefit when it’s more than the average amount of revenue a customer brings in.  For example, a $100,000 advertising campaign designed to generate 1000 new customers costs an average of $100/customer.  If your average spend per customer is only $200, you’ve only generated a net of $100,000 in revenue – you are still operating at a deficit. 

Chart B

Total Revenue

Total Customers

Average spend / Customer

Customers Lost

Revenue Loss

Retention %

$1,125,000

5000

$225

889 (18%)

$200,000

82%

$1,250,000

5000

$250

800 (16%)

$200,000

84%

$1,500,000

5000

$300

667 (13%)

$200,000

87%

In Chart B, we see how increasing the average amount of money a customer spends each year compensates for lost revenue replacement by resulting in fewer new customers needing to be acquired.  The cost of your acquisition program decreases.  Focusing on a comprehensive approach to acquisition, retention and increasing a customer’s spend each year gets you where you want to be.  So, how do you increase the amount of money a customer spends annually as a means to improving customer retention and lowering acquisition costs? 

Improving Customer Retention while Lowering Acquisition Costs requires applied effort in three areas:

Customer Service and Satisfaction – improve your service and satisfaction to make it easy for the customer to spend money with you.  This may involve one or more of the following strategies:

  • Expand your business into a new location that draws more customers
  • Customer Self-Service via website or telephone ordering system
  • Higher level of Customer Service through better training of staff
  • Gather information about your customer’s likes and dislikes to feed product buying decisions

Targeted Marketing – create opportunities for customer’s to spend more money each year by offering easy access to products they like or you believe they will like.  This can be achieved through:

  • Pro-active Marketing Initiatives based on customer buying history/patterns
  • Add-on Sales Techniques based on customer interests
  • Create Value-Add Programs based on customer lifestyle information
  • Purchasing Promotions – coupons, discounts, Buy One Get One Free

 Create Loyalty and Customer Pride – customers shop where they feel a connection and a sense of pride.  Today’s buyer will spend more for convenience and service.  This can be accomplished by:

  • Partnering with third-party resources to create Loyalty and Referral Gift Programs
  • Branding your business through a Frequent Communication Program
  • Community Relations

The most pure form of CRM enables you to use all the information you have about your customers to help make business growth decisions.  Some of the information you can garner includes:

            Amount Spent Annually                                               
            Payment Patterns
            Loyalty Factor (length of time as customer)            
            Service Patterns
            Preferred Products                                                       
            Preferred Contact Method
            Promotion (Coupon) Usage
           
Products/Services of Interest
            Children/Family Size                                                    
            Lifestyle Interests
            Referrals                                                                         
            Income Level

All of this information will tell you how to better service your customer on a more intimate level.  Some examples:

Customer Smith has been with you for 10 years and has always paid regularly.  Suddenly you notice a delay in receiving payment.  Rather than immediately cutting off your relationship or sending him to collections, you make a pro-active attempt to determine if there is an arrangement that should be made this time. 

Customer Thompson has shopped for 5 years with you, but only when she can use a coupon.  This behavior gives the indication that Customer Thompson probably doesn’t like to pay retail prices for anything.  To keep her as a customer and increase her annual spending you can motivate her to shop more frequently by offering more frequent coupons at lesser discounts throughout the year. 

Customer Wilson was a customer for 5 years, but hasn’t shopped in your store for the past 3 years.  Through the Customer Satisfaction Survey you determine that he no longer has time to shop at a storefront.  Rather he prefers to shop online.  Sending photos of products he prefers and accepting his payment via email is an easy way to get him shopping again.  When enough of your customers show an interest in shopping online, you can expand your website to accommodate sales using a shopping cart add-on piece.

So change your mindset.  CRM is the tool that gives small business the opportunity to compete with big business.  You, too, will win. 

Carol A. Smock is a 15 year veteran of deploying customer relationship management programs in businesses that could not afford CRM technology.  Ms. Smock is founder and owner of Brown Dog CRM and can be reached at carol@browndogcrm.com.

 

 

 

 


Contact Us: Carol Smock, 615. 429. 6184, carol@browndogcrm.com

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