6 Ways Customer Retention Promises Long-Term Business Growth
By Mike Haley
True business growth doesn’t happen with a new customer’s first purchase. It occurs when she comes back for the next buy and the one after that, and eventually — the ultimate growth catalyst — she tells her friend to shop there, too.
Yet 44 percent of companies surveyed by Invesp place a stronger focus on acquisition, with just 18 percent paying more attention to retention. That means their time, focus, strategies, and finances aren’t being leveraged to the fullest extent.
Factor in the expense of acquiring customers — which costs six to seven times more than keeping one who already exists — and it becomes clear that, while customer acquisition cost is an important metric, it’s not the most important one in forecasting long-term success.
While customer acquisition is important, it shouldn’t come at the expense of retaining clients. Maintaining and building those relationships should be prioritized.
The Real Return on Retention
Growth is just as much — if not more — about retaining customers as it is about acquiring new ones. Leveraging your client base as a major growth engine is faster and more cost-effective than relying on one-time customers to increase profits. In fact, raising retention rates by just 5 percent can boost profits by anywhere from 25 percent to 95 percent.
Retained customers are also more likely to promote your brand when kept happy. And with 84 percent of consumers saying they trust recommendations from family and friends, that positive word of mouth offers an additional growth lever for your business if the relationship progresses past the acquisition phase.
Besides, consider the financial security that comes with a robust client base. Existing customers are 60 percent to 70 percent more likely to make purchases, far surpassing the odds of selling to newer ones. Those figures make it hard to dispute the importance of retaining customers.
This is why it’s imperative to understand the lifetime value of your customer, as well as those customers with the potential to grow overall relationships. Losing a customer who generates $100 in revenue annually may not seem like a big loss, but if that customer had the potential for $100,000 in revenue per year, your loss is your competition’s gain.
Better Approach to Growth
Taking on a more retention-centric approach to business growth isn’t easy. The importance of acquisition is often engrained in the company culture, but think about it this way: Building a house is more difficult than maintaining one.
To help shift your mindset, I suggest the following:
1. Weigh the costs. Take a long look at how your company’s acquisition costs and retention costs stack up against one another. Existing revenue run rates and the growth potential of retained customers often have a greater net present value than acquiring new ones.
To maintain any level of growth, you must run inbound and outbound marketing efforts continually, as well as pay salaries to develop these new relationships.
2. Consider retention part of your acquisition strategy. Neither Go to the full article.