It’s important to keep your small-to-medium-sized business’ cash flow healthy whether you’re preparing to sell in the next few years, hoping to ride out any economic uncertainty, or looking to improve operations overall. One of the most impactful ways you can optimize your business’ cash flow is by improving your customer retention. Why?
How prioritizing customer retention can improve cash flow
1. The probability of selling to an existing customer is higher
Did you know that the probability of selling to a new customer is only between 5% and 20% on average? When compared to the probability of selling to an existing customer, which is between 60% to 70% on average, focusing on retaining customers and offering new value to them is key. Adding new lines of service or expanding the breadth of what you support to sell to existing customers seems like a no-brainer. Boosting your cash flow could be as simple as shifting your SMB’s focus towards maximizing the potential of your existing customers.
2. New customers cost more to acquire
According to Zippia it costs 6x to 7x more to acquire new customers than it does to retain existing ones. If you’ve had to reduce your budgets due to an economic downturn or simply want to use your current resources wisely, prioritizing customer retention is a good idea. You can spend less on new customer outreach when your business is able to retain and provide additional value to your existing customers.
3. Small boosts in retention lead to big profit boosts
Another interesting data point from Zippia is that boosting customer retention by only 5% can lead to an increase in profits by 25%-95%. Even a small boost in customer retention can lead to impressive profit enhancements that will improve your cash flow.
Focusing your team’s efforts on retaining more customers is a no-brainer if you’re looking to optimize your company’s cash flow because you will boost profits, retain repeat business, and focus your resources on providing additional value to existing customers. You can reduce the amount of money your business is spending on attracting new customers and increase the amount of money your business brings in from existing customers when you improve customer retention. But that brings us to our next question: how do you do it? The best way to positively impact your customer retention is by improving your overall customer service. Why?
How customer service impacts customer retention
1. How purchasing decisions are made
In order to secure a customer in the first place and keep them purchasing your products or services, it’s important to make them feel like they’re valued. A whopping 90% of Americans base their purchasing decisions on customer service and 70% of all purchasing decisions are based on how a customer feels they’re being treated. If you want to boost your profits and your overall cash flow, you’ll need to provide excellent customer service to attract and retain more customers.
2. One bad experience can cause a customer to leave
According to PWC, even when customers love a company 17% will switch to a competitor after one bad experience with a brand. A single bad customer service experience is enough to lose a customer, potentially forever. Additionally, 59% will walk away after several bad experiences. These hits to your bottom line can be damaging, especially if negative customer service experiences or customer service mistakes begin to pile up. Reducing errors and improving your overall customer service experience will help you keep these customers around, improving your cash flow for years to come.
3. Willing to pay for better customer service over products and services
Recent data shows that 87% of customers would be willing to pay for a better customer experience. In fact, 80% of customers believe that customer experience is as important as or more important than a company’s products or services.
The customer service experience that your company provides can make or break your business. If you want to optimize your cash flow by improving customer retention, here are a few customer service enhancement strategies that will help.
Tips for improving customer service
1. Communicate proactively, frequently, and clearly
If you want to improve your customer service, the first thing you need to do is evaluate the ways you currently communicate with your customers. Are you proactively requesting feedback from them? Are you asking them what methods of communication they prefer whether it’s by phone, email, or text and adapting to them when possible? Are you providing clear, thorough, and prompt communication when they reach out?
Once you’ve evaluated where your current communication with customers might be lacking, it’s time to fill in the gaps. If you want customers to feel like you care but they aren’t reaching out to you frequently for issues, consider conducting Periodic Business Reviews every quarter to assess their ongoing needs, review the value you’ve provided for them over the last quarter, and see if there are any additional value adds you might be able to offer them.
Another method for improving customer communication is offering a customer portal where they can update their information, place orders, and reach out to your company directly without having to make a call. This streamlines the communication process and provides an additional layer of convenience to your existing customers.
2. Reduce customer service response times
Did you know that the average customer service response time is 12 hours? Meanwhile, most customers anticipate a wait time of 4 hours or less. A great way to bridge this gap and reduce overall customer service response times is to implement automated customer service software like Tigerpaw. This allows your existing team to work smarter and more efficiently by integrating service order management into a system that also automates time-consuming manual processes and stores customer information in one centralized location.
3. Hire for good customer service
The first step to providing high quality customer service is to hire people who get it, who can do it, and then give these employees the tools they need to deliver it. You can evaluate employees for their potential to provide good customer service during the interview process. Tigerpaw’s own Joel Vaslow goes into detail on that here.
One of the tips he shared was hiring candidates who smile naturally and personalize by using your name in the interview process. Another was asking for a personal example of a time when they handled an upset customer and evaluating their response for a few key factors like empathy for the customer, personal accountability instead of blame shifting, and problem-solving skills.
If you want to focus your company’s resources on improving your overall cash flow, one of the best areas to invest your time, money and your team’s energy is in making improvements to your customer service. This will help your business better retain existing customers and even attract new ones through organic methods like positive word of mouth, better reviews from current customers, and a reputation for excellence.
