Effective customer retention can make your business more profitable.

Everyone knows that it costs 5 times as much to attract a new customer as to keep an existing customer.  So if your company has a big marketing budget to get the word out to prospective customers, but no budget for customer retention activities -- you're likely to have a big problem down the road.  This is like trying to fill a leaky bucket:  First you need to seal off those leaks.  Then your efforts to fill it will be more effective. 

Here are 5 things local marketers can do to keep their customers happy -- and keep them, period.

1.  Let's Do Lunch.

Stay Connected.  First, identify the 20% of your customers who generate 80% of your business.  At least once a quarter, get in touch with these folks.  You're not trying to sell them anything with this contact; you're trying to show them how much you care about them. 

You may wish to make a gift of your expertise; for example, with useful tips in a newsletter.  If you're a business-to-business firm, the newsletter could be replaced or supplemented with a personal phone call, handwritten note, or social invitation.

2.  You Scratch My Back, I'll Scratch Yours.

Send Referrals Their Way.  Especially if your customers are businesses themselves, you can build a relationship by helping them build their business.

If your company does not do B2B work, think of ways to do your customers a similar favor on a personal level -- perhaps with a loyalty discount card, for example.

3.  Stronger at the Broken Places. 

Act Fast to Resolve a Problem.  Can customer satisfaction and loyalty be built on mistakes?  Well, not if there are too many of them.  But nobody is perfect, and sooner or later, a customer of yours will have a problem.  When that happens, is the relationship broken?  Have you lost them forever as a customer?

No!  This is an opportunity to strengthen your relationship.  Studies have shown that if you act quickly and effectively to resolve a problem, your customer can actually become more satisfied and more loyal than a customer who has never experienced a problem in the first place!

How can you put this fact to use?  First of all, encourage your customers to complain -- to you.  You don't want them telling you everything is all right and then going around giving you bad word-of-mouth behind your back.  But if you give them opportunities to share problems with you, then you have the opportunity to fix those problems.

Second, make a commitment to resolving any such problems, immediately if not sooner.  Make sure every employee knows this and buys into it.  And make sure the attitude is not one of defensiveness, where the customer with a problem is viewed as an adversary.  Instead, show that you and the customer are part of the same team, attacking the problem together.   

4.  All Mama's Favorites.   

Differentiate Your Response.  Get a system in place that will help you and all your employees quickly assess a customer's history with you.  Is she a long-term customer who reliably spends her money with you, year in, year out?  Is he a first-time customer or prospect whom you want to win over?  Or, is she a high-maintenance, low-revenue bottom-feeder who has tried to take advantage of you before?

Then, customize your interactions with each type of customer.  Give them what they most want or need, realizing that this may -- most likely, will -- differ from customer type to customer type.   Is this one in a hurry?  Is that one high-touch?  If you handle both of these the same way, you probably won't satisfy them both. 

Make sure that each customer type secretly believes that they are your favorite!  (Except for the bottom-feeder -- her you can refer to your competition.)    

5.  Go the Extra Mile.   

Under-Promise & Over-Deliver.  It may be tempting to promise the moon in order to make a sale.  But remember, in the long run you don't really want to make a sale. 

Let me repeat that:  You don't want to make a sale.  Or not just a sale.  What you really want is to build a relationship.  You want to make repeat sales, over and over, for years to come.  That's what customer retention is all about.  And it's not going to happen if you over-promise and under-deliver. 

So manage your customers' expectations up front.  Be honest about what you can and can't do.  Promise only what you know you can deliver. 

Then, do more than you promised.  Do it faster, better, cheaper.  Throw in a little something extra.  This is worth it because the surprise and delight your customers feel at this special treatment will increase their loyalty to you.

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Now examine your marketing budget.  Is it all front-end, designed to find and attract new customers?  If so, then consider one or more of these 5 steps to keep the customers you've got.  Effective customer retention can make a tremendous difference to your long-term profitability.