Why you should have a customer loyalty scheme

There are lots of statistics around about the relative cost of acquiring a new customer versus the cost of retaining one, but typically it costs 12 times more to acquire a new customer as it does to get repeat sales from an existing one. And it does not end there – on average an existing customer buying again will spend 50% more than a new customer would.

But many businesses focus on new sales ahead of existing customers – and that is small businesses as well as large corporates! Why? Well it is easy to understand for a relatively new, small business. When you start you do not have any customers so all your focus is on getting some – but then it becomes almost like an addiction, focusing on acquisition activity and your sales funnel, often to the detriment of looking after existing customers.

It is different for larger businesses, especially corporates. They tend to rely on customer apathy to retain customers, although many have some form of loyalty programme – but they still focus much more on acquisition than retention.

So, why have a loyalty scheme? Well, it is cost effective and drives long-term profit for a business, that is why! To run an effective loyalty scheme, you need:

  1. To make it easier for an existing customer to buy from you again than it is for a first-time customer. This does not have to be difficult. All you need to do is to remember who bought from you, when they bought it and what they paid. You can keep all that information on a simple spreadsheet or card index system.
  2. To be able to offer existing customers a better price than new customers can get. As well as being a reward for loyalty, this shows customers that you value their business. Again, this does not need to be difficult. You can automatically include a small discount for repeat purchases or have a simple loyalty card which offers one free product for every X that they have bought.
  3. You need to understand your customer lifetime value so you can track how successful you are at customer loyalty.

Here are our top tips:

  1. Whether repeat customers will buy from you online or in person, make sure you (and your staff if you have some) have easy access to a single view of the customer. That means all their relevant information (name, address, purchases etc) and that you can use it to prepopulate information you already have that the customer would normally have to give you. You can also use this to start to predict when a customer will need to buy again and then proactively contact them to see if they are ready to buy again. This keeps you front of mind and makes it easy for them to choose you over a competitor.
  2. Offer repeat customers an incentive to buy from you again. Remember, any value you offer them is more than offset by the savings you make on trying to acquire a new customer.
  3. Start to track your customer lifetime value. A simple way to do this is to use a spreadsheet. All you need to do is to have a column with the customer name, one for each date they buy from you and one for the amount they spend each time. Then just calculate how many months they have been a customer and how much in total they have spent. Continue to do this until they stop being a customer. This will tell you how much they have spent in total and how many months they were a customer for. If you do this for all customers and add them together you can work out how much on average a customer spends with you each month and how long they stay a customer. That is your customer lifetime value.
  4. If you have a loyalty card, make sure it has something on it of value before you give it to the customer (for example, instead of a card with 10 empty spaces have one with 12 spaces but pre-stamp the first two). This will double the number of customers completing a card. Strange but true!
  5. Reward customers for the time they have been a customer with you rather than the amount they have spent with you. Most people see time rather than money spent as an indicator of their loyalty!

If you have an accountant, they should be your first stop for business advice. If you don’t have an accountant or they can’t help, BuBul has a wide range of experts available. For more business advice why not follow BuBul on LinkedIn?