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Customer Loyalty is Crucial to the SMB Bottom Line

by Hesam Lamei

How do you quantify the value of customer loyalty? Any company selling products or services benefits from a customer’s inclination to choose their brand over industry competitors based on personal satisfaction, convenience or familiarity. For small and midsize businesses (SMBs), loyal customers are crucial to the bottom line. In this article, I explain how customer loyalty grows the bottom line of SMBs over the long-term and why CEOs should invest in programs to incentivize customer loyalty.

Customer Lifetime Value

Long-Term Profitability of Loyalty

Loyal customers are worth up to 10 times the value1 of their initial purchase on average. This value can be equated to a number of factors. To begin with, returning customers’ average spend is 67% higher1 than new customers. Loyal customers are a source of revenue growth as customer spending tends to increase over time as they gain familiarity and satisfaction with a company and their offerings. Returning customers provide easier upsell and cross-sell opportunities than new customers, and their price premiums are higher than new customers whose initial purchases often occur with trial discounts or introductory offers. Moreover, acquisition costs spent to capture business with new customers are nonexistent for tried and true customers. In fact, you may spend up to 16 times more1 building the profitability of a new customer to reach the same level as a lost customer.

It is also important to note loyal customers essentially provide free marketing services and protection from competitors. Satisfied customers who return for repeat business and are familiar with your company will refer additional customers to your offerings. Returning customers who favor your products or services also provide built-in protection from competitors. While company strategists brainstorm how to give themselves a competitive edge, loyal customers choose offerings time and time again simply because they favor one brand over all others.

Loyalty Programs are Worth the Investment

Numerous companies are creating customer rewards programs to provide tangible incentives to return for future business. At SMBs, investing in a program that essentially pays for the opportunity of repeat business can be a tough pill to swallow for some. But, considering increasing customer retention by 10% lead to a 30% increase in overall company value1, creating a rewards program is well worth the investment. You should also keep in mind that customer rewards programs can include a variety of incentives outside of discounts or special pricing.

For example, if there are different service level agreements for your service offerings, you may want to consider offering a free upgrade to the next level for a finite period of time. Or you could offer useful promotional items which would reward customers and also create brand awareness opportunities. At my company, we have a buy-back program called Aventis Bucks that offers customers value for their used IT equipment or in-store credit that never expires. The Aventis Bucks program allows current customers and prospects to get rid of their legacy equipment that would otherwise collect dust while going unused, and creates an incentive to return for a future purchase. The possibilities for loyalty programs are seemingly endless, and do not have to require a large company investment.

The Big Picture

It is important to consider the long-term value of customer loyalty and how investing in an incentive program can lead to an increase in overall company value. Reward returning customers, then watch your bottom line grow.

1. All statistics from Provide Support, LLC infographic located here.