How Important is Customer Retention for Small Businesses

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  • Post last modified:October 8, 2018

Importance of Customer Retention for Small Businesses and Retention Strategies

Apart from competition, there can be several mind boggling challenges before small businesses. From limited marketing budget to customer service and maintaining high product/service quality, challenges before them abound. In a highly competitive environment, not just attracting new customers it is also important to retain the existing ones.  This article highlights why small businesses must focus on customer retention and how they can exploit customer retention opportunities….

Customer retention strategies for small businesses

There are several challenges before small businesses that are similar to the ones faced by the large brands.   However, the small businesses generally have a smaller customer segment to serve. For them the situation can become very challenging because of competition. So, apart from focusing on quality of products or services, they must also focus on customer relationships so as to have a high level of sales and revenue.  Many of these small businesses are subject to seasonal effect and in off seasons the level of sales can fall too low. Marketing offers a solution to several of the challenges faced by the small businesses but then the marketing efforts too can fail for lack of focus on customer retention and customer relationship.  In most cases one customer retained is equal to or better than several new acquired. While to some extent, it depends on the ‘Life Time Customer Value’ of every customer, there are several other benefits too to be realized from customer retention apart from higher sales and profits.

Small businesses often deal with smaller customer segments. Building long term relationships with the customers in such a case helps with acquiring higher sales. Moreover, the small businesses that focus on customer retention use better relationship strategies that also lead to positive reputation among the existing customers. In turn, this helps with spreading the word. Positive feedback from existing customers helps at acquiring new ones. Mostly people in the society seek advice from the others when using products or services. A small business that has built a good reputation among the existing customers earns positive word of mouth. To retain customers, small businesses must first focus on the quality of their product or service. However, that will not be sufficient for retaining customers because the competing businesses too can provide good quality.  It is why exclusive focus must be on relationships management for retention. To build good long term relationships small businesses too can offer personalized experiences.

Strategies like email marketing can be good in this regard. Personalized emails, marketing products or services or informing the existing customers about new products and offers can be effective. Small businesses should try to establish a personal connection. They can use the customers’ personal data to wish them on important dates like birthdays and anniversaries.  They can device other strategies too to engage their customers. A social media presence can also help with customer retention. There are several benefits that will come from using these methods to retain the old customers. While the customers will feel valued, they also feel personally connected with your small business. Small businesses do not have just a give and take relationship with the community. It is why they must try to maintain a good social image and presence.  Customers are more likely to connect with a business with a good social image.

Social media has become a very crucial tool for relationships management. While there are a number of CRM software that can also be utilized by small businesses, social media can be a cheaper option that can help at managing your customer relationships well. Regular tweets and Facebook posts can keep your customers and followers engaged and establish a sense of connection. You can ask your customers to follow you on Instagram too. It helps establish a strong presence and as in case of the bigger brands helps with brand recall whenever a customer is about to make a purchase. Another thing that small businesses must fix when focusing on customer retention is customer service.  The better the customer service the higher the level of customer satisfaction. That will automatically encourage your customers to keep coming back. Pay attention to every little grievance and address it properly. Communication is also an effective method of establishing better customer connection. So, focus on your channels of communication and communicate with your customer regularly.

Apart from email and social media channels, your own website can be a good channel for communication and to keep your customers updated about the most recent developments. A website is now an absolute essential for small businesses. It does not just give you a good public image, but also adds value to the business and must not be considered an unnecessary expense. It can also help small businesses overcome some of the competitive pressure and help engage customers. A good method for retaining customers is to ask them for feedback. You can ask your customers to get an account on your website and post their feedback for your products and services. This also makes your business easily discoverable. Since new customers mostly rely on the feedback of the existing customers for your products and services, your website will also offer a great venue to attract new customers. In this way, it will serve both purposes of attracting new and retaining the old customers.

The small businesses that are not careful about retaining their existing customers face several kinds of difficulties.  While they have to make more efforts to attract new customers, they also stand to lose a lot of financial value because their existing customers are more likely to gravitate towards the competing businesses.  Retaining an old customer is like securing many more sales. Small business owners can calculate the Customer Life Time Value for knowing how much they stand to gain by retaining an existing customer. Many small businesses keep making the mistake of focusing only on attracting new customers. However, unless you have adopted effective methods of customer retention, even the new customers would not last long. So, customer retention can help you multiply your sales and you should start by focusing on trust and communication. Building trust helps you retain your customers longer and regular communication makes them feel valued as well as helps with easy brand recall. So, small business owners that are interested in finding quick growth and higher sales must start focusing on customer retention and know how take their customers feel valued. In this regard customer retention must also be considered a part of marketing.

Must Read: Importance of Branding for Small Businesses

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.