A lot of marketers have conflicting ideas over which is more important: customer retention or customer acquisition. Customer acquisition is popular among marketers because there is something very satisfying about gaining a new customer. Perhaps it’s because it is great to finally see a pay-off from all of the money, time, and effort that is ploughed into marketing campaigns.
However, the truth is that, especially for established businesses, it’s often better to focus your efforts on customer retention. After all, what’s the point of investing time, effort and resources into customer acquisition, only to waste the potential of their relationship once you have them on board?
In this article, we’ll make the case for customer retention and explain why it deserves (at the very least) the same amount of focus as acquiring new ones!
1. It’s Cheaper…
Attracting new customers may be rewarding, but it also often involves a lot of hard work and expense. The good news is that the costs associated with repeat business are, generally, significantly lower. 70% of companies say it’s cheaper to retain a customer than acquire one, while others have suggested that the cost of acquiring a new customer can be as much as seven times more expensive.
By targeting existing customers — with a demonstrable interest in your product and willingness to buy it — you’re giving yourself a much stronger chance of making a sale. Studies have proven that the probability of converting an existing customer is 60 – 70%, whereas the likelihood of converting a new prospect is only 5 – 20%.
Marketing to existing customers not only offers a clear reduction in your ad spend, it also presents a chance to demonstrate your commitment to rewarding loyalty — a nice brand uplift.
Some simple examples of retention promotions include things like loyalty programs and birthday offers. They don’t take a great deal of effort, but they do show the customer that you value their custom and can be valuable tools in engendering strong, lasting and profitable relationships.
2. It’s Faster…
Again, it’s often much easier to sell to an existing customer than it is to sell to a new one. This is because all barriers to purchase have already been overcome. Existing customers may just need a slight nudge to increase your share of their wallet, and this will speed up your sales process.
After all, existing customers already know you are a trustworthy company with products or services that are beneficial. You have already offered them a pleasant business experience previously, and because of this, they are much more likely to make future purchases and generate more business for you. In comparison, persuading potential leads into becoming customers sometimes requires a lot of time and effort, and ultimately, costs more.
The bottom line is, it takes a lot of time and effort to convince leads to convert into customers, whereas existing customers (should) take very little convincing. Existing customers simply want a pleasant and consistent experience. In a nutshell, they just want you to keep your promises. If you focus your efforts on awesome customer retention, then you’ll find yourself making quicker sales with easier-to-please customers.
3. It Better Positions Your Business…
One of the best things about high levels of customer retention is that you’re able to build a more nuanced view of who your customers really are. On one hand, this data is vital to your customer retention efforts and gives you the tools to create personalized and targeted promotions to maximize your chances of success.
But, moreover, this will all assist you in your future acquisition efforts; you will know exactly what kind of people are most likely to become loyal customers — who they are, where they hang out online, what motivates them to buy and what kind of messaging they best respond to.
On the flip side, if you neglect your customers, this represents an incentive for them to shop with your competitors. Statistics show 61% of consumers take their business to a competitor when they end a business relationship, which is why retention is vital to the success and growth of your company.
By implementing the best possible customer retention plan for your business, you can set yourself apart from your competitors. Let’s be honest: who doesn’t want the reputation of being a business that takes care of its customers? It’s impossible to overstate the importance of this kind of brand profile.
Retention = Acquisition
Customer loyalty is priceless, and can even result in further customer acquisition for your company. After all, word of mouth advertising is not only free, but possibly one of the most credible forms of advertising. Customers will always talk, and they will always listen to other customers. It’s because of this that just a 5% increase in customer retention can increase a company’s profitability by 75%.
Statistics like the above prove that if you treat existing customers well, you will consistently reap the benefits. After all, your customer base is a growing source of referrals for new customers. You can even encourage acquisition from your retention efforts by giving your existing customers incentives to refer their family and friends to your company.
Marketers don’t tend to focus on customer retention enough because loyalty and engagement are often not seen as strictly ‘measurable’, but this doesn’t mean they aren’t important. Customer acquisition is critical in the early stages of start-up businesses, but once you’ve built a customer base, as soon as you’ve got one customer, retention should be on your mind. The more customers you have, the more important retention is. The key statistic to keep in your mind is that 80% of your company’s future revenue will come from just 20% of your existing customers.
To find out more about customer retention, check out our previous blog post: What really builds customer loyalty?