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Customer Retention Strategies for Small Businesses

Katharine Paljug
Katharine Paljug
Business News Daily Contributing Writer
Updated Feb 04, 2022

Losing customers can be costly, so make an effort to keep the ones you have.

  • It generally costs five times as much to acquire a new customer as it does to retain an existing customer.
  • Use CRM software to keep customer order histories and create email marketing campaigns to send pertinent information.  
  • Tiered loyalty programs encourage customers to spend more to get to the next level of perks.
  • This article is for small and midsize business owners who want to grow their company while keeping their existing customer base.

Losing customers costs businesses billions of dollars per year. But many small businesses are so focused on bringing in new clients that they forget about the ones they already have.

Sharon and Mark Spero, the owners of a Money Mailer franchise near Chicago, work directly with local businesses to target new customers and keep existing ones loyal. After 20 years in business, the Speros aren’t just direct mail experts – they’ve also seen firsthand how important customer retention is for building a thriving small company. 

Here are their key tips to improve customer retention.

1. Sell to old customers, not just new ones.

When creating a business marketing plan – including direct advertising and search engine optimization – it’s natural to think about attracting new customers. But put some of that effort into your current customers, too.

“Old and current customers know us well,” the Speros explained. “Current customers will often work with us on larger projects than new customers that are just testing us out for the first time.”

Creating a sales and marketing funnel specifically for existing customers is key to growing your business, and is often a better investment of your time and resources. It generally costs five times as much to acquire a new customer as it does to retain an existing client, according to Forrester’s research. If you spend more marketing dollars on old and existing customers, you’ll see more return on a smaller investment.

Ensure you’re keeping order history in a customer relationship management (CRM) system. When choosing CRM software, you may opt for a stand-alone CRM system or a CRM-enabled point-of-sale (POS) system

Once your CRM system is in place, use email marketing along with customer order history and other information to personalize your marketing materials. One way to do this is to suggest complementary products or services that work with a product your customers have already purchased. For example, if a customer bought a camping tent from you, send them an email asking if they need a hammock or camping stove to go with it. 

You can also look at when each customer typically buys from you and send an email around that time to stay top of mind.

2. Understand clients’ expectations.

Customer retention rates depend on customer satisfaction. But many times, that satisfaction depends less on the goods or services you provide than it does on expectations. If a customer wants a one-hour consultation to double their revenue overnight, for example, they will be disappointed no matter how good that consultation is.

“One of the most common mistakes [small business owners make] is to avoid hav[ing] the conversation with the client regarding [the client’s] expectations,” the Speros pointed out. “These expectations can often be unrealistic, unmeasured, and don’t match what they actually are trying to communicate.”

It’s your responsibility as a business owner to initiate that difficult conversation. Customers should have a realistic picture of what they are buying, including the cost of their purchase, what it includes, what they can expect as a result, and any return or refund policy you have in place.

When all these components are understood from the beginning of a purchase, customers are much more likely to be satisfied at the end result.

Key TakeawayKey takeaway: When in doubt, underpromise and overdeliver. Customers will be pleasantly surprised when things turn out better than they expected, and they will reward you with both loyalty and recommendations.

3. Receive and react to customer feedback.

Shortly after a sale is made, reach out to the customer to ask for feedback. If everything is great, ask them for a review. If there’s a problem, it’s time to look for solutions. To show customers that you care about them and their experience with your business, thank them for their feedback – whether they’re satisfied or not. 

When customers are distressed, look for ways your business can make it right with the customer while also improving internally. Was the customer unhappy because a gift they ordered for a birthday arrived too late? In that case, you may need to tighten up your shipping department. If a customer is dissatisfied with the quality of a product you sold, it might be time to find a vendor to provide you with better quality control. 

Where appropriate, reach out to the customer again and tell them about the changes you’ve made. Thank them again for helping you improve your business, and offer them a small discount to show your gratitude.

TipTip: You can also get feedback from various types of business surveys, including brand awareness surveys that determine how well your customers know your brand, the meaning of your name and logo, and what your brand stands for.

4. Offer to improve.

If a customer isn’t satisfied with their purchase or experience for any reason, the best thing you can do to retain their loyalty is to take responsibility and offer ways to improve. No matter where the mistake or miscommunication occurred, customers expect you to make the situation right – and doing so enthusiastically can turn even a disastrous situation into a loyal customer.

“When a client … wants to cancel, we push back and dive into why they are canceling,” the Speros said. Once they understand why a client is unsatisfied, they offer solutions and improvements that often convince hesitant customers to stick around.

In fact, offering to improve – and making your customers a part of that process – can increase loyalty even in satisfied customers.

In their business, the Speros schedule reviews for every account to see where they can make customers even happier. “[We] have an annual review in person with each client to listen, evaluate, reexamine, and refine [their] advertising strategy based on changes in the client’s business.” This personal attention makes clients feel valued and respected while helping a business anticipate and avoid future problems.

If you don’t interact one-on-one with clients, you can still offer improvements. An email survey sent to everyone at specific points in the year or each customer after a purchase allows customers to offer feedback and gives you a chance to make positive changes.

Once you’ve made those changes, don’t keep them quiet – let customers know exactly what you’ve done and how that will improve their experience. When they know you take their feedback seriously, they’re more likely to give you repeat business.

On a bigger-picture level, track when and why customers cancel or ask for refunds. You may be able to identify a pattern. Perhaps one of your marketing pieces was poorly worded and caused confusion, or you might discover that customers who dealt with a particular employee had a higher cancellation rate. 

Did you know?Did you know? By analyzing cancellation patterns, you can correct problems proactively by improving communication, enhancing staff training or firing an abrasive employee.

5. Communicate and connect.

Regular, personal communication is key to creating a personal connection that convinces customers to stay loyal to a small business.

Communicate regularly with your customers through an email newsletter or email marketing contact list by keeping them informed of changes, developments, and special offers. 

If you are a local business with local customers, the Speros recommend getting involved in the community to create strong, personal relationships. “We frequent our clients’ [businesses] whenever possible, see them at chamber [of commerce] functions and local charity events. This allows for conversations not just about business, but about them.”

When possible, staff at brick-and-mortar companies should greet existing customers by name and know something about them. Staff should be friendly, helpful and caring. Interacting with customers personally makes the shopping experience more pleasant and increases their connection to your business. 

If you’re working at a distance, it’s still possible to create a personal connection. “Even if there is not time to meet with a customer in person, a call is important,” the Speros advise. “It doesn’t have to be every month, but conversations, rather than just emails, create an emotional engagement that tells the customer that we are interested in them.”

If feasible, send personal thank-you notes, birthday cards and holiday cards. These efforts build customer loyalty because they show customers that you’re loyal to them. You can also create real connections by responding directly to emails and comments on social media, posting content that showcases the people behind the business or attending events – such as trade shows – where you can talk to customers in person.

By communicating directly with customers, you encourage their engagement, which makes them feel invested in your business, the Speros explained. “Through communication, a relationship is created, which often leads to a more loyal, long-lasting partnership.”

6. Create a customer loyalty program.

While communication is important, nothing influences customers to remain loyal more than earning discounts, perks and free products. In fact, according to NielsenIQ, 84% of consumers say they’re more likely to keep shopping with a company that offers a loyalty program

Since your top customers have an outsized influence on your bottom line, it’s worth it to incentivize them to spend more with you. Not only do they account for a higher percentage of overall sales, but they are also more likely to recommend you to others. 

Design a customer loyalty program that works for your business. Successful customer loyalty programs have one or more of these perks:

  • VIP club member
  • Access to order history and tracking
  • Shipping at no cost (for e-commerce sites)
  • Discounts on future purchases
  • Communication regarding new products and events
  • Gifts on birthdays

Jennifer Dublino contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

Image Credit:

jacoblund / Getty Images

Katharine Paljug
Katharine Paljug
Business News Daily Contributing Writer
Katharine Paljug is a freelance content creator and editor who writes for and about small businesses. In addition to Business News Daily, her articles can be found on Your Care Everywhere, She Knows, and YFS Magazine. Visit her website to access her free library of resources for small business owners.