Customer Acquisition: The Appeal of the New
In business, and particularly in small business, we spend a significant portion of our energy on customer acquisition. This is the lifeblood of business, and we dedicate much of our time, resources and mental effort to it. We set up business strategies to aid us; we use data to track our leads and refine our selling strategies. According to Invesp, this is the main focus of 41% of us, who view customer acquisition, not customer retention, as the priority.
But in that way, customer acquisition cause a sort of ‘revolving door’ effect, where customers leave as easily as they came. That is fine if you can guarantee a new acquisition at the same time, but the reality of business is that customers find it much easier to jump off than jump on board.
Customer Retention: The Appeal of the Loyal
The alternative is customer retention, a strategy that 18% of companies focus on (Invesp). This includes loyalty and feedback programmes, as well as regular communication after purchase. The effect of implementing wider customer retention strategies is that the ‘revolving door’ is slowed down as much as possible. If a customer’s in the building, you want to give them a reason to stay.
So why do businesses use customer retention, and what are its benefits?
Profits For Less
Customer acquisition strategies—rightly—take time, effort and resources from the business. Gaining leads, securing prospects and then nurturing them through the customer buying cycle requires co-ordinated efforts from both sals and marketing. And all this, only for a 5-20% chance of a successful sale.
In contrast, the probability of selling to an existing customer increases to 60-70%. Furthermore, factor in how much cheaper it is to sell—acquisition can be 5 times more expensive—and already the profit margin widens, to 25-95% for every 5% increase of customer retention.
Not only is it cheaper, but customer retention makes our returns more lucrative. Less time spent for more money—not a bad prospect! This, too, includes those who spend more because you have already acquired their business. This is accounts for 33% of loyal customers.
Customer Retention = Loyalty
Business is a two-way transaction and customers reward businesses for behaviours they see as acceptable. Nowadays, customers are wary about who they are seen to align with. If your business share a customer’s values, 30% of them will keep with you for that reason. Transgress even once, and their custom will be lost. But keep up the good work, and they’ll stick with you in kind.
It’s not just about values: loyalty programmes can go a long way to secure your customer retention. For 34% of customers, loyalty programmes are the very reason customers stay. The aim is to give them a reason to stay instead of a reason not to leave, but keeping that 34% won’t go under appreciated in the meantime.
What Does Customer Retention Do For Your Business?
Perhaps one of the most valuable aspects of customer retention is the space it gives you for the all-important customer testimonial. As customers are far more likely to listen recommendations from others like them, customer testimonials are they holy grail of company reviews. However, if your business strategy focuses on customer acquisition over retention, your customers may not stick around long enough to give glowing reviews. This becomes even more important when transactions include contracts or long-term investment: you want your sale to stand the test of time; but if no one is around to testify, then how can you convince others?
This goes hand-in-hand with the topic of customer service. Customers view service as an important part of their time with a company. Bad customer service is commonplace, and enough to get customers to leave; exemplary customer service gets you a glowing review and retained loyalty. Creating an honest, open and humble environment not only keeps your retention ticking along, it also helps your acquisition efforts.
Improvements and Feedback
As transactions are a two-way conversation, loyal customers will tell you what’s working well and what isn’t. This can be through reviews, increasing/decreasing purchases, or other vital metrics such as programme engagements. Taking criticism in reviews through comments, ratings, etc. can help pivot the business in the right direction that customers appreciate. You can be rewarded for this either in more positive reviews or other metrics like higher rates of retention. Customers feel like their feedback is listened to and appreciated, which fosters a good relationship between customer and company.
Making customer retention a vital aspect of your business strategy could bring benefits that are not only cost-effective, but pay off in the long term. From that, you have the potential to see your business grow financially. Plus, you'll cultivate a healthy culture of improvement, innovation and real rewards.
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Source for all statistics unless specified otherwise: More Than Accounts.