Here's Why Your Small Business Is Losing Customers

by Tom Egelhoff

Author Tom Egelhoff

If you've been in business for a while I'm sure you've heard the old axiom, "It takes six times as much to develop a new customer as it does to keep and existing one."

In most cases this refers to advertising expense.

But I think it goes way beyond that.

It takes six times as much of everything. Employee effort, building trust and confidence, overcoming word-of-mouth, and many others I'm sure you're thinking of right now.

Why exactly does a business lose customers?

As with most business topics, there is no one cut and dried answer. It may be one thing or a combination of things.

One common overlying theme is that the business loses track of who it really is and tries to be all things to all people.

Successful small businesses stick to the things they do best and ignore the rest. We all hate to turn any customer away, but if you can't satisfy that person there is no other alternative.

Lets Start With What The "Experts" Say

The experts claim if you want to keep customers give them "good, great, super, dynamic, overwhelming, unbelievable, unsurpassed, outstanding, incomparable, off the chart, out of this world, make them say WOW" service. Bunk!

Is there anyone reading this article that doesn't know the value of taking care of a customer? I didn't think so. Anyone want to admit that their customer service stinks? Again, I didn't think so.

If you are in business you know the value of taking care of the customer. I don't have to tell you to do that. It's real easy to say on paper just "be better."

It's a lot harder to do that in the real world. See: "How To Find What Your Customers Are Really Looking For."

Race cars have tachometers to let the driver know that the RPM's (revolutions per minute) of the motor are getting to high and the engine might break down.

The driver needs to keep the needle out of the red zone to protect the engine. The same is true of service.

There is a level of service that each company can safely maintain. Try to move that service level into the red and it could spell disaster for your business.

Service is the best service you can maintain consistently.

Sometimes in emergencies you will go in to the red zone but you can't stay there.

Acquaint your customers with consistent service and they will support your business.

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Perception Of Your Business

I've talked many times on this site about the logic and emotion of why customers act the way they do. See: "Understanding Why Customers Buy."

One of my rules of business is that when logic and emotion come into conflict, emotion always wins.

As much as we would like, customers do not sit down and logically compare two businesses or products and make a logic decision about where they want to do business.

Customers will develop a perception of your business based on the information you provide in your advertising and business apperance.

You may be perceived as low priced, high quality, convenient, or some other niche that your customer mentally creates.

Customers leave when you no longer are perceived to meet their needs and desires. This commonly happens when a business tries to "improve itself."

You add more services or products and some customers change their perception of who you are and what you provide.

If you are in this situation be sure there is strong communication with your customers during this process. I'll address communication shortly.

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Losing To The Competition

Every business loses customers to competitors at some point. How many are lost is the big question. Don't feel you have to mimic the competition. If they offer a service, then you have to.

That's not always the case.

Do what you do best, but be aware of what the competition is doing. Check their ads.

Have friends or relatives shop them from time to time and see what their message is.

You may want to re-read the previous section on perception. How are you perceived against your competitor. Are you both the same or are there differences. If so, how can you capitalize on those differences? See: "How To Research The Competition."

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Don't Let Pricing Put You Out Of Business

Business owners probably spend more time worrying about their pricing than any other single business issue. The major reason for this, in my opinion, is that they don't know how to connect price to value.

This is especially true in new home based or small start up businesses. They often begin by pricing themselves too low.

They establish a price in the minds of consumers and find it's difficult to raise them to reflect what their work is really worth.

Pricing is nothing more than the perception of information. For example, lets say I had a sealed tin can like you would find in a grocery store. The can has no label on it.

It might be a can of corn or peas but without a label you don't know so how much is it worth?

You might be willing to take a chance and say .50¢.

Now I shake the can and it is clearly empty except for something inside rattling around inside. It could be a coin or just a piece of metal. So now how much is it worth?

To some of you nothing. To others they might still want to take a chance that is might be something of value in that can but it is a risk because they don't have enough information yet.

Now, suppose I tell you that inside the can is an ounce of pure gold. Now how much is it worth? Quite a bit at current standards.

The point is that each time I gave you information about the can your perception of the value of the can changed.

And that's all pricing is.. creating benefits and value that outweigh the amount being asked.

See: "Pricing Methods and How To Use Them" and "How Pricing Affects Your Business."

You won't lose customers based on price if you know how to connect value to your product or service.

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How's Your Quality Control?

I've always felt that quality is directly related to customer service. Most mistakes happen when you are trying to deviate from the norm.

If a customer is in a rush for a product or service that requires speed or special handling there is a much greater opportunity for mistakes to happen.

Another reason quality suffers is that by trying to cut costs because of pricing issues, the product becomes inferior.

Most businesses have checks and balances to make sure that whatever the product is it must be of a consistent quality.

Do you maintain some form of quality control checks?

Customers expect a certain level of quality in exchange for their hard earned dollar.

If you disappoint them too often they will leave.

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Is Your Business Flexible?

This section flies in the face of the previous section. Didn't we just say mistakes happen when we change from our ridged rules and become flexible?

Well, there are times when it's beneficial to your company to do so.

Your competitors may be locked into certain procedures that can't be changed at the local level.

The part to avoid is to increase quality control for this special order and not let it affect your normal procedures.

Sometimes being flexible can uncover ways to be more efficient and find better ways of performing the task in the future.

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Communication Is The Key

When your business decides to take on a job for a customer there should be no further discussion about any difficulty that job may impose on the company.

For example, a local business here lost a customer simply by telling the customer how difficult it was to produce their job on time.

That's not the customers problem... that's your problem and any discussion about how difficult it is should be kept in-house.

Learn from the difficulty and try to find ways to be more efficient next time.

Would this customer feel comfortable bringing the same job back to this company knowing the grief they will receive?

I don't think so and I can hardly blame them for leaving.

If you make the decision to take the job that should be the end of the story.

If you don't feel you can do the job on time then that's another story.

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The Last Word On Losing Customers

We've covered a lot of ground on this topic but this is just the tip of the iceberg. There are literally thousands or reasons why your customers go elsewhere. I

f there is a secret to retaining them I think it would be consistency.

You can walk into a McDonalds Restaurant anywhere in the country and pretty much know what to expect.

You are going to get a consistent level of service, quality of food and consistency of establishment. Usually no more or no less.

I can't name a McDonalds where I received good, great, super, dynamic, overwhelming, unbelievable, unsurpassed, outstanding, incomparable, off the chart, out of this world, make them say WOW" service.

I get what I expected to get.

We have two McDonalds here in Bozeman. I don't say, "I'm going to drive across town to the other one because it's better."

They are consistent.

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