Sound the customer retention alarm.

When it comes to a data breach, companies are making some major mistakes and as a result, customers are beating the street—potentially paving a pathway for your fiercest competitor.

The good news is you can prevent it and avoid the costly impact of a breach: first, by putting a proactive plan in place and second, by adopting tactics that maximize retention.

The high-cost impact of a breach
It seems as if every day we are hearing about another corporate data breach, and in fact, we are. In the first quarter of 2008, 167 breaches were reported to the Identity Theft Resource Center—more than double the first quarter of 2007. Last year alone saw the exposure of nearly 128 million personal records.

With the Computer Security Institute reporting that 46 percent of computer security professionals have had security incidents in the past year, 26 percent of which have had more than 10, you begin to see the magnitude of the problem. The repercussions—and potential for customer revenue loss—are costly. According to a 2007 study by the Ponemon Institute, the average cost of a data breach is $6.3 million. Sixty-five percent of this cost is the direct result of lost business, including customer termination—a rate that is increasing by 30 percent a year. These costs still do not include the additional cost of acquiring customers to replace the ones lost—estimated at five to 10 times the cost of retention—requiring even more investment on your company's part.

All this amounts to an unpleasant picture, one where current practices in breach response are falling short in keeping your customers, and therefore revenue, within your company.

Legal obligation vs. Customer satisfaction
Recent research by the Ponemon Institute, the Consumers' Report Card on Data Breach Notification, has provided some of the most useful information to date to help organizations determine the most effective techniques to minimize the impact of a breach and to retain customers. A key takeaway from this research is a large gap between what companies are required to do, and what they should do to retain customers and their revenue.

Forty-three states, as well as the District of Columbia and Puerto Rico, require organizations to distribute some sort of notification to populations affected by a data breach. However, these laws do not address customer satisfaction or necessary components of a response to keep customers.