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Want Profits? Hang On to Your Customers... The Power of Customer Retention -- by Chip House Here's a "Deep Thought:" If small businesses in the US lose over 50% of their customers each year, why do they focus almost entirely on attracting new customers? That kind of thing keeps me awake at nightÄ Who's Watching the Store? The fact is, most organizations focus nearly 90% of their marketing budgets on customer acquisition and only 10% on customer retention. What would happen if more businesses focused more of their budget on retaining the customers they have, rather than spending money trying to attract new ones? I have an idea. They would see profits grow. I'm going out on a limb: Each and every business in the world will their see profits grow if they simply focus on customer retention. And email, because of its low cost and high interactivity, is the best way to keep your customers! The key is Retention Marketing, also known as Database Marketing, and the concepts apply to every business, from pizza shops to alpaca farms to insurance companies. You: Really? Me: Yes. You: Don't tell me this works for my business. Mine is different. Me: Not true. Applying simple database marketing techniques, such as Lifetime Value and RFM analysis, can have a substantial affect on business growth - for any business. RFM stands for Recency (how recent was a customer's last purchase), Frequency (how often does the customer buy), and Monetary Value (monetary value of their purchases). RFM analysis produces a ranking of customers relative to each other based on the probability that they'll buy from you again. So, basically with RFM you can predict the futureÄ You: Okay marketing guy, what does all gibberish that mean? Me: Well let's start simple. These concepts are straightforward and once you grasp them, you'll be able to easily apply them at your own business. First, let me establish a few "truths" about retention marketing: The 7 Retention Marketing Truths
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