Alok Kumar is Chief of Operations for a major telecommunications company. In Kumar’s business, it takes eight to nine months of revenue to recapture the “acquisition costs” of each new customer.
Think about that: just to recoup the money spent on advertising, promotion, introductory discounts, new-client administration and data entry requires a customer to remain loyal for eight or nine months! Only after the tenth month does Kumar’s company start to reap real profits.
What is the equivalent figure for your company? If you think you make money the very first time your customer buys, think again.
How much money does your company spend attracting new customers?
How much do you spend on taking measures to improve customer loyalty past the crucial tenth month?
In Kumar’s case, the answer was shocking! The marketing budget for attracting new customers was huge. But the retention budget for keeping existing customers was tiny. In fact, measures to improve customer loyalty weren’t even listed in the budget.
At Kumar’s insistence, and only after much effort and experimentation, his company introduced a budget line item called CORC: Cost of Retaining Customers. Starting at 0.8% of revenue, his company carefully tracked results and now dedicates a full 2% of revenue to this new but essential item in the budget.
At first, many people balk at the idea of taking measures to improve customer loyalty. Why spend money out of profits on customers who are already giving you the profits? Isn’t that crazy? Spending exactly the money you’ve worked so hard to earn?
Not at all! In fact, CORC turns out to be one of the most reliable ways to secure future revenue – into the 12th, 15th and 24th month of customer retention – and profits. The right measures to improve customer loyalty can pay off in the long run.
What kind of expenditures go into this CORC line item?
Goodwill gestures when things go wrong are included, but such service-recovery expenses are reactive – and are spent only after things have gone wrong and customers are upset.
Kumar is more enthusiastic about the proactive elements of CORC: sending unexpected gifts to long-term customers, such as surprise bouquets of flowers and dinner vouchers to customers on the tenth month of business. The company even rented an entire movie theatre and filled it with customers and their spouses for a special viewing of a blockbuster movie. Many customers commented that it was the nicest thing any company had done for them in a long time. (And a lot more memorable than just another discount.)
CORC: Cost of Retaining Customers. One of the strongest, smartest and most profitable expense items you’ll ever find – or put – in your budget to improve customer loyalty. How big is yours?
Key Learning Point To Improve Customer Loyalty
Spending money on pleasing, surprising and appreciating your existing clients to improve customer loyalty is good business. It keeps them committed to your company and lets them know you value them NOW, not just when they first signed up. Long-term profitability comes from long-term customer retention, not just new customer acquisition.
Action Steps To Improve Customer Loyalty
Figure out how long each customer must be with you before you can recoup your acquisition costs and earn a profit. Then look carefully at how much you spend each subsequent month to retain that customer with special activities and efforts.
If your budget is skewed heavily in favor of attracting new customers, but not working hard enough to improve customer loyalty, put a CORC in your budget right away.
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Copyright, Ron Kaufman. Used with permission. Ron Kaufman is the world’s leading educator and motivator for upgrading customer service and uplifting service culture. He is author of the bestselling “Uplifting Service” book and founder of Uplifting Service. To enjoy more customer service training and service culture articles, visit www.RonKaufman.com.
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