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Customer Management Strategies for Small Business

By Bob Prosen    

 

Effective customer management strategies hinge on — well — the customer! Not an earth shattering revelation, I know, but the struggle comes with striking a balance between finding customers and keeping them.

To continually increase your company’s performance and profit, small business owners must be able to manage, engage and retain customers. And while most understand this in theory, too often it’s missed in practice.

I mean, let’s be frank. Talk without action leaves you short every time.  So how is your business handling this balancing act?

Are your customer management strategies building relationships that help increase the bottom line? Or are you plagued by poor customer management that’s left you dealing with both immediate and long-term negative effects?

First, let’s take a look at the ramifications of failing to effectively manage customers.  Then, we can shift to the “How To’s” behind getting it right!

As you click to read more, you’ll find practical customer management tips to help your small business reach its goals. Striking the right balance between customer acquisition and retention can be tricky, but you can get there.

The Impact of Poor Customer Management

Maybe you’ve seen the sign that reads, “It takes months to find a customer…seconds to lose one.”  There’s a world of truth in that statement!

Losing “smaller” customers may not impact your P&L immediately, but the indirect and subtle ramification down the road can be significant.  For example, as a small business owner, consider how much money you spend on finding new customers. It adds up fast, doesn’t it?

Now, consider how much you invest on your current customers and compare the two.

Most experts estimate the ratio for acquiring new customers as being five times more costly than keeping existing ones.

Has this been your experience? From my years in business, I would say it’s more like ten times the cost of retention, double what the “experts” are saying.

Boiled down, though, all these stats and ratios simply mean this: You better be working harder and investing at least five, if not ten, times more in keeping current clients happy rather than trying to attain new ones!

To quantify what that means to your business, the loss of even a “small” customer means you’re out not only the lost revenue from that one client but also the money needed to replace that income with a new customer!

While it’s more difficult to quantify the future effects stemming from lost business, you can weigh the impact of missed opportunities from customer referrals. Among small businesses and less established organizations, referrals are an essential source of new income.

To use the MasterCard tag line: “There are some things money can’t buy.” Recommendations from satisfied customers — “priceless!”

In today’s economy where the average selling price is declining and the cost of sales is rising, it’s even more important for your business to adopt smart customer management strategies.

Providing excellent customer service and maintaining a high level of customer satisfaction allows your small business increased opportunities to remain viable.

The Domino Effect of a Disgruntled Customer

We all have our share of “prima donna” customers. Those who are temperamental, difficult to work with, scream the loudest and spend the least. Sadly, these individuals truly believe their behavior is justified and feel you are privileged to have them as a customer. In their eyes, they should always have priority.

While it may be easier to let these customers take their business elsewhere, rest assured the effect of a disgruntled customer is serious.

Failure to resolve issues can cause a disastrous domino effect of lost business if negative bashing about your company ensues.  And even if you parted on fairly good terms, a dissatisfied, ex-customer is more apt to readily and openly say negative things about your business.

Think about it. You’re a small business owner, so you understand the importance of positive referral and feedback. It’s a lifeline. But when was the last time you went out of your way to talk up a good company, as opposed to bashing a poor one? See my point? Just look around and listen. Even happy customers don’t make recommendations to others as frequently, or as forcefully, as jaded customers do in turning away potential business.

While the point is exaggerated in Pete Blackshaw’s book title, “Satisfied Customers Tell Three Friends, Angry Customers Tell 3,000,” the truth behind that statement applies.  According to a study conducted by PeopleMetrics, “on average, a disengaged customer will tell 3 more people to avoid a company and its products and services.”

Bottom line: Don’t get on the losing end of a customer complaint.  Work diligently to remedy the situation so you can move toward a successful end.

Tips for Developing Effective Customer Management Strategies

At the end of the day, we all want the same thing – to increase our bottom line. With exceptional customer management strategies in place, you can improve your company’s performance and generate more sales.  Here’s how:

  • Find the right balance and focus between customer acquisition and customer retention: With the cost ratio for getting new customers (over keeping the ones you have) ranging from 5x-10x, the impact of not finding proper balance is even more critical to small business owners.  Dr. Claes Fornell, Professor of Business Administration, Professor of Marketing, & Director of National Quality Research Center at the University of Michigan, is recognized as one of the world’s leading experts on customer satisfaction measurement and customer asset management. He put it this way “…the first priority for any company should be to defend its customer base. Without it, the prospects for the future would be bleak.”
  • Be very judicious where and how you spend your money: Let’s face it, most small business owners don’t have deep pockets and need to make every dollar count. To do that, it’s important to know your return on investment for every dollar spent.
  • Diversify your customer base and avoid revenue concentrations: Just as the old saying goes, “Don’t put all your eggs in one basket,” be careful not to build your business around one customer. If a large customer represents a significant portion of your revenue, the effects of losing that client can kill your business overnight. Make sure your revenue stream comes from a variety of sources. Doing so will protect your small business during shifting markets and economies.

Managing your customer base should be a constant work in progress. Customers change, markets shift, and business demands get altered, so your customer management strategies should be a work in progress as well.

To establish a business, you have to work hard to attract and acquire customers. To stay in business and grow, you have to not only acquire new customers but also retain them, and that means continually improving your small business customer management strategies from top to bottom.

*Cartoon originally appeared on CustomersAreAlways

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