Smart Companies Boost Profits By Up to 95% By Using This One Tactic

And yes, engaging your customers can get you there

Happy Monday, y’all! I hope you had a wonderful weekend and are ready for a productive week!

So let’s dive into another key benefit of engaging your customers; Higher lifetime customer value (LCV).

I asked ChatGPT to define LCV for me, and here’s what it spat out: “Customer Lifetime Value (CLV) measures the total revenue a business can expect from a single customer account throughout the relationship. Loyal and engaged customers tend to spend more over time, leading to increased revenue and profitability.”

Now that sounds great, but it comes with a caveat: You can only enjoy the benefits of a customer over its lifetime if you can RETAIN that customer. This is another reason why customer engagement is so important, because it helps you retain customers. Too many companies fall into the trap of thinking that once a customer purchases, they will continue to purchase. Absolutely not the case. Customers must be engaged and nurtured and a positive relationship must be developed in order to win a customer’s future business. In fact, much of a customer’s decision on if they become a loyal customer happens after the first purchase is made. The first purchase is NOT a commitment, it’s a trial. And if you fail, they leave.

For those of you on Substack (hi guys!), think of it like gaining followers. It’s great to gain followers, but there’s no guarantee they will continue to follow you. They are following just to check things out, if they like you, they will probably upgrade and become subscriber (loyal customer), and if they don’t, they will leave. Same thing with customers, they will buy once, if they enjoy the experience, they will probably buy again.

In 2016, as a member of Adobe’s Insider Program, I attended Adobe Summit, and one of the sessions I enjoyed was by The Container Store’s Director of Customer Engagement, Nicole Coburn. Nicole was discussing The Container Store’s loyalty program called POP! (which has since been rebranded as Organized Insider). I talked to Nicole a bit after the session, and she explained that the average customer visits a location of The Container Store twice a year. But the average loyalty program member added one incremental visit. So in effect, The Container Store was realizing a 50% increase in shopping trips for customers who were a member of POP! The impact this would have on LCV is obvious.

Now let’s dig into five reason why loyal customers are good for your business:

Repeat Purchases. This one is easy. Loyal customers will continue to make purchases, which pushes their LCV even higher. It also increases revenue and gives you more operational stability.

Repeat purchases only happen if you can retain customers. Customer retention is massively important, HBR says that a modest 5% increase in your customer retention rate can boost profits by up to 95%!

Increased Spending. Loyal customers are also more likely to spend more when they do make purchases. As a customer becomes satisfied with one product you offer, they will tend to buy more of that product, to stock up and possibly to give as gifts to friends and family members.

Reduced Acquisition Costs. One of the biggest benefits of loyal customers: Lower acquisition costs. Every additional purchase that a current customer makes is a new customer that you didn’t have to pay to acquire. Think about that.

Cross-Selling and Upselling: If you sell complimentary products, a loyal customer will often purchase one product because they enjoyed the first one. Additionally, if you debut a new product or product line, your current customers will often be the first to purchase it, especially if it complements an existing product which they already enjoy.

Referrals: Loyal customers will acquire new customers for you. One loyal customer not only increases their LCV the longer they continue to buy from you, but each new customer that they acquire for you creates a new LCV for that customer. One loyal customer that promotes you to other customers can create a massive revenue ripple affect through simple referrals.

How to Increase Your Customer Retention Rate

Since retaining customers is vital to achieving a higher LCV, let’s talk a bit about how to increase your customer retention rate.

First, engage your customers. More engaged customers are more likely to stay. Think about it, when a business engages with you and makes an honest effort to connect with you, it matters, doesn’t it?

Listen to your customers and actively solicit feedback. Every time I take my Ford into have it serviced, I get a followup survey a few days later asking me what I liked and disliked about the trip. It’s a simple gesture, but by asking for feedback, the dealership is communicating that they appreciate my thoughts. Bonus: When you act on customer feedback, communicate to your customers what changes were made, and make sure they understand that their feedback was incorporated into the process.

Provide stellar customer service. This goes without saying, but a key element of improving your customer service comes from simply engaging with your customers. I’ve talked about this before, but by increasing engagement with your customers, you also improve your understanding of those same customers. When you better understand your customers, you can provide them better support.

Be open and transparent with customers to build trust. Building on previous points, when you engage with customers, it makes it easier for customers to trust you. Letting customers know about the decision process that goes into making key decisions communicates that you value and appreciate those customers enough to let them know why those changes were made. It can even extend into product offerings, with features like free returns. If a customer trusts you, they will continue to buy from you. It’s that simple.

So that wraps up this edition of Backstage Pass. I hope you have a wonderful and productive week ahead, I will see you again on Thursday!

Mack