It’s no secret that customer retention is a crucial element for business success. While other marketing priorities–including customer acquisition, branding, and customer profitability– are important, retention is paramount. Not only does customer retention also mean value retention, but it is also one of the most efficient ways to acquire and secure new customers.
Your company will suffer if retention is not a top priority. Searching for and acquiring a new customer costs a whopping seven to ten times more than simply retaining and securing a sale—and also potentiating future sales—from an existing customer. The sense of accomplishment from acquiring a new customer means nothing if overshadowed with the burden of losing an existing one.
Using the seven to ten percent figure, it would cost an average of $850 to acquire a new customer in a scenario where it costs just $100 to retain an existing one. With the image of the representative graph (below) in mind, it’s ludicrous to think the average business accepts losing half of its customers every five years; especially considering many of these customers leave merely to conduct future business with your competitors.
There are countless approaches to retain customers and improve retention, ranging from basic efforts to build lasting customer relationships to investing in the limitless potential of big data. We’ll explore these approaches in different posts, however, as understanding and believing in the importance of retention is a precursor to effective action. At minimum, retention efforts should supersede desires to attract new customers. Ideally, retaining customers takes precedence over new ones.
With such overwhelming cost benefits of retaining customers verse acquiring new ones, why does customer retention still often take the backseat to attracting new ones? Surely it makes more sense to keep customers “employed” and loyal to your company than to fire existing buyers; which you essentially do by insufficiently addressing their desires, expectations, and unique consumer attributes. If this seems like an over-the-top analogy, it may benefit you—and your business—to refer back to the customer retention and acquisition costs chart.
Successfully retaining a customer implies you have sufficiently satisfied their needs in a competitive marketplace. First-time buyers are substantially more hesitant—and more conservative–to invest in your business than an existing customer. Neglecting the desire and need to retain customers, and being committed as an organization to do so, is one of the most damaging mistakes your business can make. Retaining customers is like fishing with dynamite, and with proper execution, retention is both attainable and relatively low cost. Low cost does not mean easy, however, and retention strategies will fail if they are not consistently adjusted and executed.
Consider basic customer behavior, and put yourself in the consumers’ shoes. Satisfied and existing customers encourage new ones through loyalty and positive reviews of your product or service. In order for this propitious cycle to take place, retention is paramount. A loyal and satisfied customer base helps take the burden off of your employees’ acquisition and recruitment efforts. Positive testimonials and word-of-mouth referrals are sure-fire ways to convince new buyers to invest in your company. Aside from propitiating growth, positive feedback from existing consumers encourages additional benefits, including attracting competitive employees and positive media attention.
Acquiring new customers while failing to retain existing ones—new faces to replace the old—is more detrimental than merely putting you back to square one. Precious time and money are lost between the process, and you are never guaranteed successful acquisition; even with tried and true methods. Attracting—let alone satisfying—new customers if you cannot retain existing ones should raise a red flag…and there is a problem if it does not. All other points aside, how can your prospective customer be anything more than a one-time buyer if your other customers are not?
With such clear implications, it’s disheartening that so many businesses continue to neglect customer retention, often valuing customer acquisition as the top priority. Immediate behavior assessment and change should ensue upon acquiring an understanding of how and why retention is a fundamental determinant of business success or failure. If a competitor is foolish enough to neglect retention as a top priority, then retaining—and understanding the full value—of their could-be customers becomes even more satisfying.