Customer Retention. The Road to Profitability

By Pablo J. Perez, Executive and Business Coach


The notion that there is no linkage between customer retention and profitability is being proven false. There is a direct linkage between customer retention and profitability.

One survey found that a 5% increase in customer retention consistently resulted in a 25% to 100% increase in profits. These almost unbelievable results would suggest that there must be a powerful force, your emotional connection to your customer, which needs to be understood and effectively managed.

Customer retention is not only a cost effective and profitable strategy, but in today's business world it's necessary. This is especially true when you remember that 80% of your sales come from 20% of your customer and clients. With these statistics in mind, I am wondering why most marketing and sales campaigns are designed for the new customer.

Take for instance the wireless telephone companies; if you sign a new contract you are given a large rebate or even a free cellular telephone. If you are a current customer you have the privilege of paying full price. Can someone please explain that methodology to me. With this type of promotion are we not just pushing current customers and clients to seek services elsewhere when their contract ends?

Creating a new business model that focuses on customer loyalty and retention would show that there is, in fact, a linkage between all elements of a business system: your employees, customers, and investors—and the generation of profits. Providing customer value begins with a management philosophy that supports the cultivation of strong customer relationships and is implemented by having properly trained and motivated employees who know how to deliver value.

Research has shown that customers who have an emotional connection and feel valued will repeatedly be repeat customers as well as provide a strong referral base for new customers. Loyal customers repeatedly purchasing your product or service are what generate sustainable business growth and profit. However, your practices and processes that support loyal customer relationships must be in place first before you will begin to see a profitable impact. This model does not work in reverse, although many organizations seem to think the reverse is possible.


This new business model is important because it initiates a series of steps which cascades through the organization as follows:

1. Revenues and market share grow as your best customers build repeat purchases and recommend you to others who also become loyal.

2. Employee retention increases due to job pride and satisfaction, which in turn creates a loop that reinforces customer retention through familiarity and better service to the customers. Customers like doing business with people they know, and your employees want to do the right things because it makes their job far less stressful.

3. As costs decrease and revenues increase, profits increase. Improved profits provide resources to invest in employee development and compensation (further increasing retention) and in new features and products that enhance customer value. Profits are important not just as an end in themselves. They also allow the organization to improve value and provide additional incentives and reasons for employees, customers, and investors to remain loyal to your organization.

4. Costs begin to shrink as the expense of acquiring and serving new customers and replacing old customers declines. In our experience, it is five times more profitable to spend marketing and advertising dollars to retain current customers than it is to acquire new customers.

So what can you do differently for your business? Perhaps a good place to start would be to find better ways to create and sustain a loyal customer base. While there will be the need for an investment, the advantages will be enormous to your customers, employees, and investors. Strictly from a financial perspective, increased revenue from improved service quality tends to be 10-20 times the costs associated with fixing the problem.
If you want more information or you are interested on increasing your customer retention ratios, please call (305) 722-7215, or you may also send me an e-mail at pjperez@activategroupinc.com.

Reference and excerpts taken with permission from Customer Loyalty published by Resource Associates Corporation, Mohnton, PA.

Customer Loyalty: Priceless

By Pablo J Perez, Executive and Corporate Team Coach

Last summer, during a deserved break from my coaching activities, I decided to spend four days with my family at a beautiful resort on the west coast of Florida. The experience was “ok”, except for the speed of the checking-in and out processes, pool services and other services. In a nutshell, overall service was satisfactory but not memorable. If asked, I would relate to the resort that “I was a satisfied customer”.

However, would I stay at this resort in the future? Would I recommend the resort to my family and friends? The answers toboth these questions area resounding “no.” In conclusion, I was a “satisfied” customer but not a “loyal” customer.

According to Jeffrey Gitomer of Customer Satisfation is Worthless: Customer Loyalty is Priceless, “Satisfaction is not longer the acceptable measurement of Customer service success”. The Gallup Organization’s research also concludes that no matter how an organization thinks its customers are satisfied, if it hasn’t made an emotional connection with its customers to develop a long-term relationship, satisfaction will ultimately be worthless.

During my summer experience, there lacked an emotional connection with the resort, resulting in a loss of desire to return to the resort.
Great customer service is all about bringing customers back. And about sending them away happy – happy enough to pass positive feedback about your business along to others, who may then try the product or service you offer for themselves and in their turn become repeat customers.
Customers will come back and will bring family and friends to do business with you, if:
1. The “emotion” experienced at every “point of connection” during the buying process is so strong that it leaves a mark on their memories.
2. The relationship is based on “trust”. Customer will seek your personal assistance, and they are willing to pay for it.
3. They feel you really care about their needs. Always put your Customer’s interests and needs ahead of yours.
Here are some statistics
• A typical dissatisfied customer will tell 6-10 people about the problem. A typical satisfied customer will tell 1-2 people.
• It costs 6 times more to attract a new customer than it does to keep an old one.
• Of those customers who quit, 68% do so because of an attitude of indifference by the company or a specific individual.
• About 7 of 10 complaining customers will do business with you again if you resolve the complaint in their favor.
• If you resolve a complaint on the spot, 95% of customers will do business with you again.

What happens to angry customers?

• 91% of any business's angry customers will never come back.
• 96% will never tell you the reason that they left.
• 80% will do business with you again if their problem was handled quickly and to their satisfaction.

If the problem was quite bad, they will tell stories about it for years and years to come.

"Who is typically to blame when you lose a customer?" Most customer service providers will answer that it is the customer's fault! (and here is the scariest percentage) .. 99% of the time that customer service provider only needs to look in the mirror to see who is truly at fault!”

From a scale of 1-10, how likely are your Customers to recommend your organization to someone else? If your answer is below 7 or you don’t know the answer, it is time to think about developing a Customer Loyalty Strategy to start creating the “emotion” not only on your External Customer but also on the Internal ones (employees).

If you want to learn more details about our Customer Loyalty Development Program and how valuable for your organization it might be, please review our website at www.activategroupinc.com, call Pablo J. Perez at (305)722-7215 or send an e-mail to pjperez@activategroupinc.com.

Is Your Company Flying in V-Formation? Collaboration and Teamwork

By Pablo J. Perez, Executive and Corporate Team Coach

Geese fly in V-formation for aerodynamic efficiency. Are management and staff focused on reaching a common goal through teamwork? How do you know if your teams are staying focused and flying in a V-formation to generate customer retention and loyalty?

Why do geese fly in V-Formation? A goose's eyes are set in the sides of its head, giving good all-round vision but leaving a small blind spot directly ahead and behind. If a goose were to follow directly behind the one in front, it would have to turn its head slightly to see it clearly and would have to resort to asymmetrical flapping to maintain a straight course, reducing its aerodynamic efficiency and wasting energy. Experiments have shown 25 geese flying in a V can travel 70 percent further than solo birds. The birds function more efficiently in a group working together.

The same should be said for your organization. Every employee should be focused on reaching a common goal through teamwork and collaboration. Team responsibilities should be clearly defined, and management should provide strategy and support by identifying the strengths of each team member. Team members should be selected to complement one another by utilizing their differing skills and experiences.

Jim Collins, in his best-selling book Good to Great asks the question: Do you have the right people on the bus? In this regard, Collins says that the executives who ignited the transformations from good to great did not first figure out where to drive the bus and then get people to take it there. No, they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.

In my experience as an Executive and Corporate Team Coach, the initial steps to increase team performance and global organizational productivity are:

• Have a clear understanding of the skills and behavioral profiles of each team member. Forthis purpose we have been successfully applying personal and professional assessment tools that have given us the opportunity to help our clients make a better decision at the moment of hiring a new employee or building a team for a specific strategic purpose.

• Evaluate the organizational “flying formation”. Two critical questions that are often asked by senior management are, “How do we know that resources have been properly allocated, and how can we better utilize our limited resources?” The use of organizational assessments has given our clients the opportunity to answer both questions, providing information as to how well critical elements are working together to achieve business and strategic goals.

Henry Ford once said, “Coming together is a beginning, keeping together is progress, but working together is success.” For a thousand years, humanity has proven that working together generates an energy so powerful that is able to create unimaginable things. The Great Wall of China and the Pyramids in Egypt are just examples of teamwork and collaboration.

Teams that have fun and enjoy their work will focus on even higher goals and be more willing to get the job done, as opposed to employees that commit only to a boring existence of working their shift each day with no incentives.

If you are the leader of an organization or a head of a department or division, it is your responsibility to:

• Create the strategy to enforce teamwork in the organization or division.
• Provide positive reinforcement. If at all possible, throw a party, have an outing or invite your team for an informal get-together after work. Even if you can celebrate a team's success with pizza for lunch or a cake during a break, it is another positive reinforcement of the team effort and a building block to future successes.
• Provide support and improve the teamwork processes.
• Recognize and regard excellence in teamwork.

If you think 1+2=5 is a miscalculation, think again. Teamwork and collaboration, just like the geese flying in V-formation can take you 70% beyond your goals.

If you want more information or you are interested on implementing a V-formation for your organization, please call (305) 722-7215, or you may also send me an e-mail at pjperez@activategroupinc.com.