How Long-Term Customers Benefit Your Company

If today’s revolutionary business leaders were to outline a declaration of their dictums for business success, would they claim that all customers are created equal? I doubt it. Just like parents, business leaders can’t help but notice that each customer is unique. And although they might not admit it, most business leaders acknowledge that long-term customers are treated differently than new customers. Why? Because long-term customers bring certain unique benefits to any organization.

First, long-term customers represent a stable form of dependable revenue, even if their individual purchases are small. Most companies get two-thirds of their sales from current customers, in fact. For instance, according to A Complaint is a Gift, by Janelle Barlow and Claus Moller, “Domino’s Pizza calculates that over just a 10-year period, regular customers are worth about $5,000 [each].”

Still, it can be difficult to see how much base profit long-term customers provide in the long run. To think beyond each individual sale, consider the following formula: Multiply the customer’s average purchase by the number of purchases they make per year, and then multiply for five, ten, or twenty years. For instance, if you run a dry-cleaning business, a customer might only pay $25 per week. However, if we translate that to a yearly expenditure, we see that this customer purchases $1,200 of cleaning per year. In five years, that one customer would bring in $6,000 of business.

And that’s just direct business. If a customer sticks around for years on end, they are almost certainly recommending your business to their friends and families, effectively doing your recruiting work for you. In other words, long-term customers can help lower your marketing and sales budget. Furthermore, those who come to your company on a referral are more likely to be engaged customers. As PeopleMetrics’ 2009 Most Engaged Customers report stated, “Customers who choose to use an organization after receiving a recommendation are more engaged and more forgiving than those that come to you blind.”

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Reward Programs: Are they Effective for Creating Engaged Customers?

Most Americans are members of at least one loyalty program, if not several. Whether they carry around a R.E.I. dividend, a key chain tab for their grocery store, or a card for their airline, Americans love to get a little something extra for their patronage—and loyalty programs claim to give it to them. The American love for loyalty programs is strong, even in the recession. As loyalty research firm COLLOQUY’s Rick Ferguson put it, “Despite the recession, more consumers across all demographic segments are participating in rewards programs than ever before.” In fact, COLLOQUY found a 25% increase in American loyalty program memberships since 2006. So, reward programs are popular, but are they effective from a business perspective?

The effectiveness of loyalty programs may be defined in several ways, but we’ll look specifically at how loyalty programs affect Customer Engagement. Engaged customers have a positive emotional connection to a brand, they are loyal, passionate advocates for a company. Engaged customers will go out of their way to do business with you. We focus on customer engagement because we have found that Customer Engagement is a predictor of overall business success. Companies with more engaged customers see higher profit margins, more loyal customers, and even happier employees. For us, then, the real question is how loyalty programs impact customer engagement.

From a customer engagement perspective, rewards programs are not automatically successful. Many companies hope their loyalty programs will increase sales, help gather customer data, and entice customers into trying new products. However, none of these outcomes guarantee higher customer engagement.

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