NFIB

Achieving Your Ideal Percentage of Repeat Customers
04/ 11/ 2002

By Jeffrey Moses

Why is there an "ideal percentage" of repeat customers? Because having too low of a percentage means that your business may lack the stability it takes to remain profitable in all types of economic conditions. Having too high a percentage means that you're not attracting new customers, which is dangerous if you ever lose the existing ones.

Every type of industry has an ideal percentage of repeat and new customers. Most retail businesses, for example, should receive between 25 and 50 percent of its business from steady, repeat customers. A lower percentage could result in severe fluctuations of revenue from month to month. Exceptions to this rule are retail businesses in extremely high-traffic locations such as resort areas or interstate highways. By their very nature, they'll experience a constant high percentage of new business. Some small business owners might think that mall shops also would be an exception, but experience shows that even mall locations thrive best when repeat local shoppers provide an adequate percentage of revenue.

Service businesses are on the opposite end of the spectrum. Businesses specializing in graphic design, software development, landscaping or architectural design need to have approximately 75 percent of their business from repeat clients. A lower percentage usually means that when one job is finished, the owner will have to go out and immediately start looking for new clients. But having higher than 75 percent means that marketing has ceased, and the company could be vulnerable if even one or two clients drop off suddenly.

Every business has its unique percentage of repeat customers. Talk with your business advisor about determining the best percentage for your business, then determine how to achieve it.

Here are a few ways to start working toward your ideal percentage:

1. Offer discount cards to steady customers. Discounts usually need to be at least 10 percent to be attractive. However, anything greater than 15 percent could diminish your margins too much.

2. Provide punch cards so that customers can receive a free product or service (a lunch, a hair coloring, a lawn mowing, etc.) after a certain number of punches.

3. Offer a substantial discount for payment in advance. A common example is video rental stores, which offer ten or more movies at greatly reduced rates when payment for all ten is made in advance. This tactic not only helps secure steady customers, it can also stabilize cash flow.

4. Have true "customer only" sales several times a year. Announce these by direct mail to your customer list.

5. Most importantly, make sure that your staff recognizes your company's best customers and works to make them feel special. When customers feel special, they'll go out of their way to do business with you and recommend you to friends.

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