For the first time, small businesses are investing more of their time, money and resources in strengthening relationships with existing customers versus acquiring new customers, according to the 'Achieving Big Customer Loyalty in a Small Business World' report by Manta and BIA/Kelsey. This article is copyright 2014 The Best Customer Guide.

In 2012, BIA/Kelsey reported that small business owners prioritized customer acquisition over customer retention at a 7-1 ratio. However, more recently, a new trend is developing as 61% of small business owners surveyed report over half of their annual revenue comes from repeat customers rather than new customers and that a repeat customer spends 67% more than a new customer.

In line with this, small business owners are spending less time and money on customer acquisition; only 14% are spending the majority of their annual marketing budget to acquire new customers, and only 20% are investing most of their time and effort to acquire new customers. This is a significant shift in behavior as small business owners have realised that existing customers play a more influential role in business success than new customers.

But even with this shift in small business behaviour, business owners are not yet poised to take full advantage of their customer relationships. The study found that only 34% of SBOs have a loyalty programme while the majority (66%) do not. Moreover, the majority of SBO loyalty programmes are offline rather than online, failing to take advantage of technologies that enable seamless implementation and deeper customer insights.

Two members of the Manta community, Viralprint International Wholesale Graphic Design and Printing Services and Ronnie T's SPALON, reported that the digital customer loyalty programmes they run have generated a return on investment (ROI). Unfortunately, while email and social media rank as the most effective features, only 46% of customer loyalty programmes are digitally run and managed, with more than 50% of small business owners still relying on paper-based or word-of-mouth programmes.

"Our study showed that customer loyalty programmes are starting to gain traction in the small business community," said Jed Williams, BIA/Kelsey's vice president of strategic consulting. "This aligns with our conclusion that over half of small businesses will launch customer loyalty programmes by the end of 2014 to help them be more competitive."

How to start with loyalty
The following tips, then, outline the first three steps small businesses can use to begin building a customer loyalty programme:

  1. Start with the end in mind
    Start with the desired outcome in mind. Define your goals and what you want to achieve from a customer loyalty programme. Make sure the goal is specific and can be measured, as it will dictate the strategy and tactics you put in place. The goal of wanting more business is too broad; instead determine if you want to decrease customer churn, increase average order size, improve customer acquisition, etc.
  2. Determine your audience
    Will the programme be for all customers or just your best customers? You may want to target customers by spending thresholds, frequency of purchases or even specific products. Targeting a specific group helps you reward ideal buying behavior, subsequently driving more of it. If it's your first time launching a customer loyalty programme, starting with one group could keep you focused and make it easier for you to track results and metrics.
  3. Make your programme ROI-positive
    Once your primary goal and audience are in place, you can then determine your programme structure. Will your programme be points-based or have a tiered reward structure? Make a list of multiple options that could help you meet your goal, assess how much they cost and how much they will net you in return to identify the best structure for your business.