Customer retention vs customer acquisition

14 Nov 2017 Dominic 1

Should your business focus on customer acquisition or customer retention? In reality you should be focusing on both as with no new customers coming through you run the risk of having a declining customer database in time.

I have worked with retailers who were VERY focused on customer acquisition and getting as many as possible on a weekly basis however both areas are important for any business. However if you are a more established business, you may be better placed to focus your attention on customer retention for a number of reasons.

I have tried to highlight below why I think you need to focus on customer retention and why that will not only keep you from leaking your customers but also help in forming a better business model with which to drive success.

Retention is more cost effective

Getting new customers is hard work – who are they? Where are they? How much do I need to spend to get them? Getting new customers can be expensive depending on what market you are in. The value of an insurance customer who may be with you for 5 years vs the value of a fast fashion customer will be vastly different.

The costs associated with repeat business are though significantly lower with 70% of companies saying its cheaper to retain a customer than acquire one – some companies stating 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%.

With just a little bit of investment, you can target your existing customers with more targeted messages, better relevance to them and this ultimately improves conversion rate. Looking at your customer database and offering targeted promotions to your customers rather than blanket promotions will also help drive customer loyalty.

Retention is quicker to implement with more ROI

Trying to sell to a new customer costs more because you have to do more to convince the customer to purchase from you. Think about it – what do they know about your company? Do they know you are reputable? You offer value? You have to do more to convince customers that you offer quality products.

Existing customers already know you (hopefully) offer a good service and quality product. 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.

It takes a lot to convince your leads to purchase from you which is why it costs so much to drive that customer traffic to your site. Existing customers need less encouragement – so long as your offer is good and you are meeting their everyday needs then it should not cost as much to convince them to buy.

Retention can better inform your business strategy

One of the benefits of focusing on customer retention is that it forces you into more data analysis of your current customer database and from that analysis you can come up with better and more accurate information on your customers.

For example you may find out that half of your customers are actually only buying into one product or category – or perhaps the mix of products being sold online vs in store is significantly different (as I experienced with a recent client thus forcing me to alter the retention strategy). Getting more data on your customers can inform how you alter your retention strategy moving forward.

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.

If you don’t put the effort into trying to establish what your customers want, you run the risk of neglecting them – and lets face it we have all deserted one company for their competition. 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.

Get retention correct and it will drive acquisition

If you focus on retaining your customers with a good customer retention plan based on informed insight and analysis on your customer database, then by default your retained customers should actually start recruiting new customers for you.

Word of mouth is a great way of getting new customers and as a business if you go out of your way to improve your customer offering, you should reap the benefits with more new customers. I see retention as the bricks and mortar of your business – get the offer and everything else correct and success should follow. 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%.

You do not need expensive software or technology to develop a simple customer retention plan. My advice would be to focus on what data you could get easily and combine email with social and customer services together to contact customers with the best offers which are relevant to them at that point in their relationship with you.

A simple retention plan could look like this …

Basic Plan 

1. Welcome (new customer) – Auto email to introduce you to new customers
   1. Welcome, thanks, about us, been around x years etc
2. Welcome (new leads) – Auto email to introduce you to new subscribers
   1. Welcome, thanks, about us, been around x years etc
   2. 2 weeks – Have you been checking out our latest offers? Good deals / tell you what here is a little offer to tempt you – 10%
   3. 4 weeks – Still not enticed you? – final offer of 15% off four first order to join the club
3. Customers Never ordered – Activation email for those customers never ordered – 1, 2, 3, 4 months
   1. 1 month – Not seen you for a while / don’t forget / can we tempt you with 10%?
   2. 2 months – Not seen you for a while / don’t forget / can we tempt you with 10%?
   3. 3 months – Same – change to 15%
   4. 4 months – Same – change to 15% last chance
4. Customers placed one order – encourage second order
   1. 1 month – hope you enjoyed your first product, could we entice you with more – choose from a fabulous selection
   2. 2 month – hope you enjoyed your first product, could we entice you with more – choose from a fabulous selection
   3. 3 month – reminder – 10% off 2^nd order
   4. 4 month – reminder – 15% of 2^nd order
5. Active Customers – repeat customers who have defaulted
   1. Customer buys every x weeks – first default
6. Customers at risk – all customers at risk / about to lapse – who we are, what we are about, why shop, don’t go – discount 10% discount
   1. 6 months – Heh , not seen you for a while, don’t forget, great deals, etc 10%
   2. 7 months – Same heres 10%
   3. 8 months – Same – here 10%
   4. 9 months – Same – heres 15%
7. Customers lapsed – weekly email to all lapsed – don’t leave us, come back, why shop etc – incentivised discount – discount 15%
   1. 9 months – Heh , not seen you for a while, don’t forget, great deals, etc 15%
   2. 10 months – Same heres 15%
   3. 11 months – Same – here 15%
8. Happy birthday – happy birthday! Enjoy a great day /15% off

Closing Thoughts on Customer Retention 

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.

Finally, you need to make sure that you are using all relevant teams and tools to improve your customer retention. my first port of call has always been customer services and customer surveys – from this information you can then build up a basic retention plan.

Categories: All Posts, Retention

Tags: Customer Retention, retention