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Proven Business Building Success Formula for Building Customer Loyalty

Written by: Leanne Hoagland-Smith

Article Overview: Is building customer loyalty important to you? Do you know the real question that determines loyal customers? Maybe you are not asking the right question and not measuring the right results.

Proven Business Building Success Formula for Building Customer Loyalty

Building customer loyalty is one of the smartest strategies to increasing sales, decreasing costs and improving profitability. In the book, Ultimate Question: Driving Good Profits and True Growth by Fred Reichheld provides one question to separate loyal customers from satisfied and dissatisfied ones along with a formula to help businesses build loyal customers to increase sales.

Yet, this ultimate question and the accompanying formula, as good as they are, fail to reach that next level where action is taken. And action that being a sale is what businesses need to stay in business. With this knowledge, the question now becomes when was the last time the person you recommended my products or services actually came in and made a purchase?

Customer loyalty needs to be directly connected to these 3 business results:

1. Increase Sale
2. Improve Profits
3. Decrease Costs

A proven formula should reflect how many actual referrals are received from each customer whether active, inactive or even lost, center of influence or a passer by. Then this formula should also determine the value of those referrals by the actual dollars delivered (increase sales) and potential future dollars to be received. From these statistics, the business can improve profits and decrease costs.

To adopt this proven formula does require tracking of all new customers and tying those new customers to a referral source be it a person or even an advertisement. Then the company can determine the measurable results from its marketing activities. Sales Coaching Tip: Marketing results can be measured and tied directly to new business.

For example, recently I had a meeting at a new coffee shop in Northwest Indiana called Evelyn Bay. Since that time, I have been there a couple of additional times and have made recommendations to several people because it is an exceptional place for coffee, a breakfast wrap or homemade soup. The WIFI, comfy chairs and general atmosphere are great for a quick business meeting to having some down time. Additionally, I have scheduled a lunch meeting there with someone who has never been there.

All of this business can be traced directly back to the person who initially invited me. His referrals and actions place him at the highest end of the customer loyalty formula.

However a company constructs this formula is up to them. These criteria probably should be part of that formula.

* Number of referrals made
* Number of new customers from those referrals
* Dollars generated
* Potential dollars generated (future business)

For example if a customer delivers one referral, then it might look like this: 2/1. The numerator two represents the new customer and the customer who made the referral and the denominator represents the current client who made the referral. When you do the math, this means that the customer loyalty factor for this customer is 2. As the existing patron continues to bring in new clients, the numerator increases. For this local coffee shop, the gentleman who introduced me is probably somewhere around a 20 if not higher due to his active business networking activities.

The second part of the equation would require assigning an average value to each visit. This would require the establishment to know the average purchase per customer.

Using the example of the coffee shop, possibly the average purchase is $5.00. Now the formula looks like this 2/1 x 5 = 10.

Finally, the last part of this equation is knowing the average number of visits per month or year. Continuing with the example of the coffee shop and using a monthly time frame, maybe the average visits are 4 or one a week. This completes the formula as: (2/1 x 5 ) x 4 = 40. The existing customer is not a $20 a month client, but in actually is really a $40 a month patron. As to the person who initially brought me, his value is probably double to triple due to his active business building skills.

Customer loyalty is truly not about how likely a current client will recommend your products or services, but rather have they taken action to do so and how do those actions translate into actual dollars? By using this approach to determining your loyal customers, you can quickly see where you should place those precious marketing dollars and more importantly how to leverage word of mouth advertising.

Related Articles
  Why Customer Relationship Management (CRM)?
  Is It's Never Too Late or Early to Build Customer Loyalty
  Tips on Building Customer Loyalty
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  Revealed key elements of a successful customer loyalty programs

Article Tags: building customer loyalty, business meeting, business results, coffee shop, comfy chairs, evelyn, exceptional place, fred reichheld, homemade soup, increasing sales, loyal customers, measurable results, new business, next level, northwest indiana, profitability, proven formula, referral source, sales coaching, true growth



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