The Impact of Customer Retention Strategies and the Survival of Small Service-Based Businesses

Abstract

Small businesses comprise 99.9% of all firms in the U. S. (U. S. Small Business Administration, 2018b). As entrepreneurs develop ideas and build a customer base, small businesses create jobs and drive innovation that is critical to the economy. Unfortunately, the majority of small businesses are plagued by high failure rates and poor performance levels, which ultimately lead to decline. A major concern in small business survival is the lack of customer retention strategies, as a means of sustainability. Customer retention can significantly impact a firm’s profit margin, with a 1% increase in customer retention providing as much as a 5% positive change in a firm’s financial standing (Moenardy, Arifin, and Kumadji, 2016). Nearly 80% of a firm’s future profits will derive from 20% of existing customers (Hwang, 2016). The purpose of this research study is to examine the application of retention strategies such as customer relationship management, customer satisfaction and brand loyalty, by small businesses in preserving existing customers, thereby having a positive impact on longevity. The research established relationships management, and customer satisfaction, as fundamental elements that can yield increased revenue, enhanced brand equity, and profitable retention. Small businesses with a large pool of satisfied customers tend to have a long-term competitive advantage are more likely to sustain their profitability over a more extended period (Bhat & Darzi, 2016). The results of this study may offer insight into the importance of managing retention for small business survival. In addition, the findings provided tactical approaches and best practices to initiate positive customer experiences, meet and exceed customer expectations, and invoke repeat purchasing behavior as mechanisms to support the long-term profitability of small firms.