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Pegasus Blog

Know your customers and increase profit

DATE

March 19, 2014

If the recent economic downturn has taught us anything, it is that the old saying ‘the customer is king’ reigns true.

The recent economic downturn saw costs cut back to the bone, and revenues plateau, and as a result, many organisations have turned their attentions to the profitability of their existing customers in the quest to achieve business growth. The rationale behind this shift is clear. Serving customers well is a foundation from which managers can protect their market share, boost profitability and achieve competitive advantage as economic growth gathers pace.

You can almost take your pick of the statistics which illustrate this fact, but a couple of favourites are that a 2% increase in customer retention has the same effect as decreasing costs by 10%; and a 5% increase in customer retention increases profits by 125%. However a strategy focused solely on maximising customer retention is by no means the answer. We know only too well that retaining the wrong customers can actually impede growth strategies.

The assumption that all retention is good is where companies’ CRM strategies start to fall down. The reality is that in an era where competition is rife and customer loyalty is difficult to sustain, it is crucial to gain an understanding of which customers are likely to generate the most value. In the hotel industry for example, it is fairly easy to see which customers are most profitable based on frequency of stays, extent of additional services purchased, and number of recommendations. In other industries based on more diverse or infrequent buying patterns, it is often much more complex.

But the fact of the matter is that unless you know the value of your customers, and can pinpoint the activities and initiatives which will increase their profitability, you are effectively flying blind when it comes to growing your business. You may unwittingly be investing large amounts of effort into unprofitable customers and throwing money away. Therefore, it’s absolutely crucial to adopt tools and systems which facilitate 360 degree visibility and can be accessed from any location. Equipped with this visibility, the entire suspect-prospect-customer-aftersales cycle can be used to highlight areas which represent a drain on the bottom line and look at the potential of profitable customers.

Adopting a strategy focused on customer retention is clearly fundamental in the quest to increase profitability, but without the tools and systems to identify the crucial ‘who’ and ‘how’ factors, many companies risk falling short of realising their growth potential.

For more information on the right CRM solution for your business, take a look at Opera 3 CRM.