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How Marketplaces Keep Customers Coming Back The success of many companies rests in their teams' understanding of one very crucial business factor: returning patrons.

By Tx Zhuo

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

REUTERS | Kai Pfaffenbach

The meteoric rise of businesses such as Uber, Airbnb and ClassPass may seem like an anomaly to the average bystander. But in reality, the success of these companies rests largely in their teams' understanding of one very crucial business factor: return customers.

The marketplace is highly competitive, and strong consumer support will differentiate a struggling startup from one trhat's successful and growing.

After all, return customers are your company's biggest promoters. They're constantly generating new users through word-of-mouth brand advocacy. Travis Kalanick, CEO of Uber, reported that 95 percent of new riders hear about Uber from other riders. In fact, for every seven rides taken by existing Uber users, a new user is generated.

Return customers are also a great indicator of the quality and value being provided by your business. This leads to customer satisfaction, which is a huge determinant of future business.

Some companies that could easily fall into a one-and-done business model use loyalty programs and promotional credits to keep customers coming back. Others focus heavily on customer service and satisfaction, addressing problems quickly and thoroughly before they spiral out of control.

Finally, return customers improve a company's bottom line. A five-percent increase in customer retention could increase profits by up to 125 percent. And because it's seven times more expensive to attract a new customer than to retain a current one, companies that focus on return customers save money by reducing churn.

To improve customer engagement and retention in your own startup, apply these five strategies.

Related: The Secret to Getting Repeat Customers

1. Develop a strong customer community

Turning a business transaction into a community experience is a great way to encourage customers to come back. SoFi -- an online, peer-to-peer student loan platform -- has found success with the internal marketing program it created through its social community ecosystem. The community allows SoFi to stay in touch with customers in a nonintrusive manner while allowing consumers to engage with one another through community programs.

2. Understand the value of the customer life cycle

Engaging with customers throughout their various life changes will promote customer loyalty. Playing a role in their lives when they buy a house, start a new job or expand their family will put your company at the top of their minds when the next big life event occurs.

3. Personalize the consumer experience

Tailor the consumer experience to demonstrate that you care about your customers' needs at every point in your business relationship.

New York City-based startup Thumbtack wanted to stand out in the lead-generation platform space. So the company used public information to understand the professionals it wanted to sign on. Then, it sent personalized emails to offer them three relevant jobs they could start immediately.

Related: Delight Your Customers by Being Effortless, Not Over the Top

4. Focus on slow and steady growth

The term "slow" isn't attractive to most entrepreneurs, but taking your time to prioritize customer happiness over growth can greatly benefit the quality of service you provide. For example, TaskRabbit -- an online marketplace for outsourcing small, local jobs -- went from being in five cities in 2011 to 19 cities now. The company's growth may seem slow to some, but it's intentional.

"We would rather accelerate our growth in a smaller market, creating a continually great experience for our customers," says CEO Eric Grosse. "It only takes one subpar experience to generate a negative feedback loop."

5. Manage both supply and demand

In addition to paying close attention to customer satisfaction -- the demand side of business -- it's also important to ensure that the supply side of your company is happy and healthy. For example, after Uber realized that many of its drivers worried about not receiving benefits, it provided discounted options for health insurance, auto repairs and cell phone plans. If left to fester, the problem could have greatly damaged Uber's momentum.

Entrepreneurs who want to set themselves apart in a competitive marketplace must focus on retaining a client base. Startups will keep customers happy by establishing and maintaining high quality standards across all business processes. Satisfied customers will come back for more -- and they'll bring others with them.

Related: The Magic Words Customers Want to Hear

Tx Zhuo

Managing partner at Karlin Ventures

 TX Zhuo is a managing partner of Karlin Ventures, an L.A.-based venture capital firm that focuses on early-stage enterprise software, e-commerce, and marketplaces. Follow the company on Twitter.

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