Customer Retention Versus Customer Loyalty

  Customer retention measures how many of your current clients were clients a year ago.  To calculate retention, divide your number of current clients (who were also clients a year ago) by the number of ALL your clients from a year ago.

If you have 10 clients today, of which five were clients a year ago, you retained 50 percent of them. Have you also achieved 50 percent client loyalty? Not exactly. Here's why.

Satisfied customers are not necessarily emotionally invested
Just because a client renews their relationship, it doesn't mean they're emotionally invested, a quality deemed critical for loyalty. You may not particularly like your dentist, but you go back year after year because you've neither the time nor energy to look for a new one.

However, a great referral on a new dentist comes your way, and you grab it. Your current dentist is understandably confused. But your perceived loyalty was actually nothing more than convenience. Maybe you complained about him to your spouse and friends, buy you never really articulated your dissatisfaction with him.

Loyal patients tolerate any inconvenience to do business with their preferred dentist. And they send him or her lots of referrals.

There are often no warning signs
It happens in the ad world everyday. With no warning, an Account Executive from Leo Burnett walks into the office to hear her primary account has signed with Ogilvy. She's understandably baffled since she had lunch with her client on Friday and everything appeared fine.

What to do
There are several things account executives and other customer-facing professionals can do to understand who's loyal and who is not.

Ask your clients if they are happy with you
Sounds obvious? You'd be surprised how many unhappy clients don't voice their dissatisfaction until it's time to dump you.

Conduct account reviews
Smart companies conduct quarterly account reviews with the sole purpose of tallying their "report card" with their biggest customers.  If you're not doing this, start it now. It's easy. Just schedule 15 to 30 minutes with a customer to review your performance.

Put NOTHING else on the agenda. No sales pitches, no up-selling. If, in the course of the review, your client indicates additional needs, absolutely let him know what you can do.

Many account executives sell half their quota during regularly account reviews that aren't even designed to sell.

Ask for a testimonial
This works really well. You ask a happy client to be a reference or a testimonial. If they hesitate, probe a bit further. They may turn you down because they have a 'no reference' policy. But if they don't, this technique will get clients to open up about their relationship.

Don't just deliver service, deliver a memorable experience
Okay, you're all getting sick of hearing this by now, but it's growing more important everyday. Companies that create experiences have higher loyalty. Nordstrom sells the same clothes as its competitors, but its loyalty quotients are off the charts. We all know why.

Measure wallet retention
Wallet retention measures the amount of contract value you've retained with clients over a twelve-month period. Divide the contract value of clients who were clients one year earlier by the total contract value from a year earlier.

If your wallet retention exceeds client retention, it indicates your high rollers are coming back. Wall Street loves this.

Vance Christensen, the CEO of Amae Software, has a good list of loyalty signs:

You negotiate prices with customers. You negotiate costs with loyal customers.

Customers pay at their discretion. Loyal customers pay on time.

Customers become referrals of your competitors. Loyal customers willingly provide referrals to you.

Generally, you will experience turnover rates of 15% or higher. The turnover rate of loyal customers will be less than 5% and will be for reasons out of your control.

Most customers seek competitive data. Loyal customers share it.

Loyal customers perceive you as a partner not a commodity provider.

Contracts keep satisfied customers in place. You have a virtual lifetime contract with your loyal customers.

Most customers will leave you if they find a better offer. Loyal customers will stay by your side.