Retention: The Value of Customer Relationships

First, let’s take note that there is a clear measurement in determining a customer’s retention or continuity with your business. According to a senior lecturer at Harvard Business School, Jill Avery, that metric is known as churn rate: “the percentage of customers who end their relationship with a company in a particular period.” It is calculated by taking the number of customers who left during a given period divided by total customers at the beginning of the period. Churn rate is an interesting metric as it signals effectiveness of customer service and is also used in marketing departments to evaluate strategies or particular customer segments. 

When customer service is efficient, their loyalty to your business increases which directly generates into sales. Additionally, as interests and purchases remain in tact with a satisfied customer, their operating cost declines considerably. In fact, acquiring a new customer is five to 25 times more expensive than retaining a existing ones (Harvard Business Review). Better yet, their satisfaction will generate new customers as they refer others to your business. 

If the cost differential doesn’t indicate enough of a reason to focus on your existing customers, then perhaps research done by Frederick Reinchheld of Bain & Company will. He concluded from his reseach that an increase in customer retention rate by just 5% increases profits by 25% to 95%. 

Ultimately, improving your company’s customer service is extremely valuable as proven by the numbers. Their loyalty derives from the satisfaction they receive and by providing exceptional service, you will retain a solid customer base that will come knocking on your door, again and again.

The Value of Keeping the Right CustomersDepending on which study you believe, and what industry you're in, acquiring a new customer is anywhere from five to 25…hbr.org