Yesterday’s email focused on losing long-term customer value when internal processes are chaotic.

Today we’ll look at it from the customer perspective.

Specifically:

• The Consequences Of Lost Loyalty
• The Cost Of Burned Customers

The Consequences Of Lost Loyalty

Loyal customers are often misunderstood. Just because a customer buys from you multiple times doesn’t make them loyal – it just makes them a repeat customer. 

When it comes to the kind of loyalty that moves the needle for your company, loyal customers have many, if not all, of the following characteristics:

• Make repeat purchases: Yes, repeat purchasing is one characteristic of a loyal customer. But it’s only one.  
• Deliver a high share of wallet: The customers who spend more of their available money with you are likely to be loyal. It’s not just the raw revenue number. Small customers can be highly loyal. This is an important nuance – all too often, I’ve seen companies bend over backward to accommodate the “whales,” only to find they’ve served them at paper-thin margins or even at a loss.  
• Refer others: Loyal customers are more likely to refer others to your company, delivering higher initial levels of trust and lower customer acquisition costs.
• Provide valuable feedback: Loyal customers *want* you to be successful so they give you valuable feedback to improve your products and services.
• Become advocates: Beyond referrals, your loyal customers will be the ones telling their friends and colleagues about how awesome you are. Given the above stats about the power of negative word-of-mouth, you need these folks to counterbalance the nay-sayers and boost your brand reputation whenever possible.

Every loyal customer is incredibly valuable to your company. You need to know these customers, engage with them, and most of all, you need to keep those customers.

Loyal customers are invested in their relationship with you, and that means they’ll be patient when things go wrong for a longer period of time. But eventually a poor experience will derail even the most accommodating folks – it is business, after all.

Here’s why this is a problem:

Once you’ve lost loyalty you’re not winning it back easily. But if you’re only looking at customers by revenue tier, and not by level of loyalty, you’ll easily miss the upside of loyalty and you’ll suffer the consequences of losing those key customers. 

How to fix it:

• Learn the differences between repeat customers and loyal customers.
• Identify the characteristics of a loyal customer so you can find more like them.
• Quantify the upside potential of a lucrative, loyal customer for your company.

The Cost of Burned Customers

Have you ever had a customer experience that was so bad that you went out of your way to share their bad experiences with anyone who will listen?

That’s a customer who’s beyond churned, they’re burned. 

I’m a burned customer.

There’s a company that did me dirty – a large retailer with multiple well-known brands. I won’t name names here, but if you ever catch me in person, just ask. I’m more than happy to tell you exactly who they are, what they did and why I’ll never give that company a nickel of my money again. 

Over the years, I’ve told TONS of people about my bad experiences with this company. I know for a fact I’ve scared some people away from buying. I’ve also gone out of my way to write bad reviews and share my story. 

I’m not alone.

Here’s why this is a problem:

Studies have shown that customers who have a negative experience are:

• 5 times more likely to switch to a competitor
• 4 times more likely to tell others about their negative experience
• 2 times more likely to stop doing business with you altogether

In fact, it gets worse! Because bad news travels more than good news. 

An unhappy customer will tell 10 people about their bad experience. A happy customer? They’ll only tell 3. 

Beyond the negative word-of-mouth, factor in the cost of supporting these unhappy customers before they leave. Your team has to spend more time dealing with unresolved and escalated tickets. That means more resources to manage customer concerns reactively rather than proactively.

NO matter how you slice it, the math is not on your side.

Here’s How To Fix It:

• Identify the predictors of churn for your unique business so you can take action proactively.
• Evaluate customer health against those predictors.

Today’s audit resource is an Upside of Customer Loyalty Calculator.

It requires a little explanation:

Think about your customer base and imagine your average customer. This is a “straight up the middle” kind of customer – not bad, not great.

• How much revenue do they generate with you annually?
• And how long do they generally stay with you as a customer?

Your answers to those questions become your “Average Customer Revenue” and “Average Customer Lifetime” variables.

Now think about your most loyal customers – the great customers who truly value the work they do with you. Enter the Loyal Customer variables by answering the following questions:

• How much revenue do those loyal customers generate annually? (Loyal Customer Revenue) 
• How many years do these customers stay with you? (Loyal Customer Lifetime)
• How many successful referrals do these loyal customers make each year? (Number of Successful Referrals per Year)