Understanding Customer Loyalty

David Milton
Understanding Customer Loyalty


Understanding Customer Loyalty

Understanding your customer base and its drivers and motivations is key to growing revenue. It is a well-known fact that for almost all businesses, it is cheaper to get repeat custom than going out and finding new customers. Despite this, many companies spend very little time getting to know and understanding their customer base. These same companies are often those that also have aspirations of accelerating their rate of income/equity growth but aren’t sure how to make the next step.

Customer loyalty is a key component of client base management and getting familiar with the facts is a habit practiced by all of the fastest growing companies. The diagram below is a simple chart that explains the % chance of repeat business as a customer incrementally buys more product/service with a business. So;

  • After the first purchase, there is a 50% chance that the customer/client will buy from you again
  • By the second purchase, this probability has increased to 70%
  • With the third purchase, the percentage now averages around 85%
  • Beyond the fourth purchase, the chances of repeat business increase to 95%

These statistics in themselves may not change your business, they may not even be news to you. What is of importance however, is what is done with them. A key question posed to Shirlaws clients at the beginning of any work around client base management is; “what does your business do to make sure a new client buys again from you?”

We spend a lot of time working with high growth potential businesses addressing this question and investing in strategies and techniques to create a value proposition for the customer/client to encourage them to come back a second time.

If you want to understand what this can do for your bottom line, run some simple maths with me:

  1. How many customers/clients did you have in the last year?
  2. How many of these were new clients?
  3. How many of these new clients are likely to turn into repeat business?
  4. If you could turn 20% of those new clients from last year into repeat customers, how much extra revenue would that deliver to your business from the second purchase?
  5. Given that there is a 70% chance that after the second purchase, these customers would buy a third time, how much extra revenue would that deliver to you?

You can quickly see how understanding customer loyalty can unlock huge revenue growth. The trick is, to know what strategies and techniques you can employ to create a value proposition strong enough to do this.

David Milton