A good customer loyalty program can generate significant gains in recurring revenue for your business by improving the return on your marketing and sales budget.
- Keeping an existing customer costs up to five times less than winning a new one.
- It’s easier to persuade a customer who already knows you to buy again and/or buy more from you.
- 20% of customers are typically responsible for 80% of a company’s revenue.
Before developing a customer loyalty program, you need to know whether this will be a useful tactic for your business.
The first thing to determine is the value of a customer to your company and how much it costs to acquire one. This will help you decide whether to invest more money on developing new customers or on retaining and developing the ones you already have.
The value of a customer
Let’s say a good customer at a B2B company buys $30,000 worth of product in a year.
At the same time, you spend $175,000 a year in marketing and business development activities that yield, on average, 10 new customers a year. Therefore, your average customer acquisition cost is $17,500.
If you have several existing customers who don’t spend $30,000 with you in a year, why invest $17,500 finding a new customer? With a good customer loyalty program, you will most likely boost your sales to existing customers at a much lower cost.
Steps to develop a customer loyalty program
(1) Study your current customers
Here are some questions to ask about each customer:
- How much does this customer buy in a year?
- What type of products do they buy and how frequent are purchases?
- How long have they been a customer?
- Can we sell them other products?
- Do they use other suppliers, and, if so, who are they?
- How much profit do we earn on their purchases?
- How fast do they pay?
- How satisfied are they with our company?
- How could we improve our business relationship?
(2) Prepare your customer loyalty program
Before launching a loyalty program, you need to assess your customers’ current level of satisfaction through such techniques as surveys, interviews and monitoring customer comments.
Then, identify employees who are good at dealing with customers and who will be available to participate in the program. You will need to target customers who purchase frequently from you but could become more profitable, according to your analysis. If the purchase cycle is long (more than three years), this type of program is generally not recommended.
(3) Set goals, and measure them with a CRM
Set your goals for the program from the beginning. For example, if your customers purchase on average three times per year, set a goal of 3.3 times a year. This will increase your sales by 10% with few additional expenses. Use CRM software to manage this program. If you are looking for a low‑cost or free CRM solution, you may want to consider our list.
(4) Set a budget
Set a budget for managing customer retention and a separate one for developing new customers. To do so, consult your industry average, if you are looking for above‑average growth, increase your budget accordingly.
(5) Decide which customers to target
Based on the study described above, categorize your customers (e.g. A, B, C) according to evaluation criteria that are adapted to your needs and objectives.
- Volume of purchases
- Ability to purchase more products and services
- Speed of payment
- Customer profitability
- Loyalty over time
(6) Choose tactics that will encourage client loyalty
Choose loyalty enhancing tactics that are related to a customer’s purchases, but also to the quality of your business relationship. Here are some examples:
- Monthly visits from a sales representative.
- Annual visit and business lunch with the vice president of sales.
- Personal invitation to a seminar and dinner given by the president.
- Premium service guaranteed 24/7.
- Emergency phone line and secure website access.
- Additional discounts when purchase milestones are reached.
- Sponsorship of an annual event.
If your customers are businesses, there’s a good chance this type of program is good for you.
But a customer loyalty program doesn’t mean you can neglect new business development. It’s a never‑ending job to increase your portfolio of loyal customers.