Small businesses must focus on existing customers to survive

Most small businesses are still neglecting much needed good customer service while times are hard - but it could be an even more costly mistake, according to Rosie Beasley (business correspondent at simplybusiness.co.uk), who gives tips on restoring the balance.


It costs more to gain a new customer than it does to retain an existing customer. Most businesses know this and yet many small firms are failing to place any importance on customer retention.

A recent study, Who Cares?, found that although three quarters (78%) of small businesses are experiencing customer demand for greater levels of service for the same or less cost, only 17% plan to put a higher priority on offering good customer service during the recession.

It’s likely that most businesses feel that they already offer a good level of customer service and, therefore, can concentrate their time and energy on new business generating activities. However, satisfying the needs of customers isn’t just about being polite to them on the telephone or getting back to them promptly. A business needs to go the extra mile and exceed customer expectations in order to be competitive. Customers are much less loyal during an economic downturn as they look for the best deals around. A small firm can no longer rely on loyalty as a customer retention tactic.

Favouring new business opportunities

It makes sense to focus a decent proportion of time towards gaining new business right now, as customers are more willing to try new companies and services than ever before.

The Who Cares? study showed that 38% of small businesses have lost customers as a result of the recession and almost half are worried about losing more. This suggests that businesses need to find a balance between new business activities and spending more time looking after existing customers – not just with time but also with funding. Only a fifth of small businesses (20%) have increased spend on customer retention from last year.

Increasing new business is of course very important in order for a business to grow. Yet it will only grow if the customers it already has stick around. Without this core stability, it would be like trying to plug a hole in a bucket with sand.

Creating a balance between new and existing business

Fortunately, it is easy to develop a customer retention programme and it can take only a small amount of time to implement. Each business is different and the customers have varying needs and priorities. Here are some ideas to get a customer retention programme off the ground:

1. Put in place a dedicated way for customers to get in touch. It’s important for your customers to know how to contact you if they have a question or a problem, so create several avenues for this purpose and monitor them regularly. A dedicated phone number (or extension) and a dedicated email address should be your key contact methods and then you can try out new things like Twitter or on-line forums to go that extra mile.
2. Implement a company-wide mandate for dealing with customer enquiries. This simply means that all employees should follow the same procedure when dealing with customers. For example, make it compulsory that all customer enquiries should be dealt with in less than 48 hours.
3. Communicate with your customers regularly. Even if the nature of your business means that your customers buy from you just once a year, it doesn’t mean they should feel forgotten or neglected. Regular communications – whether letters, emails or phone calls – can make a world of difference. If you’ve got a specific reason to get in touch, such as a competition, special offers, or new content on your website, they will have a reason to re-connect with your business between purchases.
4. Rewards for recommending new customers. This is one of the best ways to maintain customer loyalty and bring in new business at the same time. Customers tend to recommend products and services to their friends and colleagues, so if you give them a reward for recommending your business you are giving them an added benefit plus you gain cheap new sales leads.
5. Personalise. Customers want to feel valued and treated as real people, not just as numbers on a spreadsheet. You can do this by personalising your communications with them and even just by remembering their name if they come into your shop or business premises. Keeping a good database with full details of your customers is the key to giving the personal touch.
6. Special offers and competitions just for customers. Often new customers get the best deals and the most special offers, but it’s a good idea to offer exclusive deals and benefits to existing customers. Make sure they know that these offers are for existing customers only. Doing so will reassure them that they are valued and not forgotten about.

Customer retention is is a profit strategy! It is not expensive compared with generating new business so it makes sense to spend time on both areas. Forward thinking such as this will help carry a business through the recession and towards successful growth in the future.