Retention key to business – and community – success
Frederick F. Reichheld and Phil Schefter of the Harvard Business School cited a study analyzing the costs and revenues that came from serving customers over their whole purchasing life cycle. They said: “We showed that in industry after industry, the high cost of acquiring customers renders many customer relationships unprofitable during their early years. Only in later years, when the cost of serving loyal customers falls and the volume of their purchases rises, do relationships generate big returns. The bottom line: Increasing customer retention rates by 5% increases profits by 25% to 95%.”
This likely follows in your business. Regardless of sector, high levels of service are a key component to customer retention. Providing great service is more than just the proverbial “right thing to do” – it also makes good business sense. The fact is,BR&E current customers are much easier for a business to sell to. According to Marketing Metrics, the probability of converting an existing customer is 60 percent to 70 percent. The probability of converting a new prospect, on the other hand, is only 5 percent to 20 percent. These numbers make perfect sense, and as we all know, people are more responsive to individuals or companies they’re already familiar with, compared to complete strangers.
Let that sink in a bit as we end another ski season, and quickly approach a busy summer. Increasing retention can increase profits, and current customers will convert at an incrementally higher rate, and lower cost, than acquiring new customers.
Retention doesn’t only apply to customers. It also applies to our business community and it is why Vail Valley Partnership & Vail Valley Economic Development are implementing the SmartBusiness Eagle County Business Retention and Expansion (BR&E) outreach program. Our goal with the BRE program is to identify and bring both systemic concerns and sector opportunities to the attention of local leadership, to help leverage resources to help local businesses achieve their highest potential.
Most of a community’s job growth and capital investment comes from companies already located there. Based on Blane, Canada Ltd.’s research, an urban/suburban community will average 76% of their growth from existing employers. A rural community such as ours is even more dependent on internal growth. Among the Vail Valley’s greatest assets are the businesses who call this place home, and the Vail Valley’s economic health depends on the wellbeing of our existing businesses.
Similar to a business focusing effort on customer retention, retaining and expanding existing businesses is a surer economic development bet than recruiting new ones from other towns. Extension helps communities understand local business needs and respond – so that businesses stay, grow, and become more committed to the community. Our BR&E strategies program gets the broader community involved in comprehensive business retention and expansion planning.
BR&E programs have five traditional goals:
- Identify companies with plans to expand
- Identify companies at risk of leaving/downsizing
- Identify company and community problems
- Provide assistance
- Build relationships
While there are many parts to a BR&E program, the three central elements are understanding clients, identifying their needs and forming relationships. Executive visits/interviews are the primary means of achieving these goals. We are starting this outreach effort now, and will be ramping up with a volunteer core of community leaders in the coming weeks and months.
As noted earlier, keeping an existing business in the community is usually easier (and is certainly more cost effective) than recruiting a new business. Our outreach program is designed to help community leaders and communities to work together to identify barriers local businesses face as they try to survive and grow.
This allows for a better understanding of local business growth potential, value to the community, risk of leaving, and satisfaction levels; it also offers a channel for local businesses to seek assistance. The gathering of predictive data on Vail Valley’s business portfolio can help to grow the value of our community’s business base, which we expect will lead to greater retention of our local businesses.
Vail Valley Economic Development looks forward to facilitating the creation of jobs and capital investment through our SmartBusiness Eagle County BR&E effort. Our community is focused on the growth and expansion of existing firms (business retention and expansion) as part of our holistic economic development strategy. Please visit VailValleyMeansBusiness.com to learn more about our BR&E efforts and other economic development services available to the business community.
Chris Romer is president & CEO of Vail Valley Partnership