Weighing Your Business Priorities: Customer Retention vs. Acquisition
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Finding and acquiring new customers is a huge focus for small business owners, and rightfully so, but should you be focusing more time on retaining current customers?
Understandably, most businesses favor customer acquisition, says Ali Cudby, who teaches entrepreneurship at Purdue University.
"New customers are sexy in a lot of ways," she told Kate Silver for a Trends and Insights article for American Express.
For one, when you get a new customer, it's "easier to mark the before and the after," said Cudby, founder & CEO at Alignmint Growth Strategies.
New customer sales are also often celebrated more than customer retention because of the immediate revenue returns, compared to the payback delays that may happen when investing in retention initiatives, says Co-founder and Head of Data Science at VOZIQ Vasudeva Akula, in a post for Forbes.
Why Shift Your Focus?
Always focusing on getting new customers doesn't address "customer churn," points out Hitesh Sahni in a SmallBiz Technology article.
You won't be able to attain steady growth rates for your company without returning customers, he adds, no matter how many new customers you have.
While it's a toss-up depending on who you ask about where your priorities should lie, here are 5 reasons your small business could benefit from upping your game on customer retention.
Future success. There's research that indicates increased customer retention efforts could have the power to impact your company's revenues down the line.
According to the Gartner Group, a global information technology research and advisory company, 20 percent of your customers will contribute to 80 percent of your future profits, says a blog by Retention Science (ReSci), a Constant Contact marketing software company.
"That means the revenue sources you've been trying to find are most likely sitting right under your nose, waiting to be nurtured and cultivated," the post says.
Better conversion rates. Your chances of turning a prospect into a new customer are about 5 percent to 20 percent, and yet, according to Marketing Metrics, the probability of converting an existing customer to buy again is 60 to 70 percent.
"You should find ways to delight and generate more revenue from your current customers than relying solely on acquiring new customers," writes Sahni in the SmallBiz Technology post, which cites the Marketing Metrics statistics.
Lower costs. An oft-cited statistic compares the cost of pursuing new customers vs. retaining current ones.
"Most of the research shows that it costs between 6 to 7 times more to get a new customer vs. keeping the customers you already have," says Cudby.
Repeat customers are will probably spend more. According to data from Laura Lake, repeat customers spend 33 percent more when compared to new customers, according to the ReSci blog.
Instead of constantly looking outside their companies to bring in new business, the post says, it's recommended that companies focus on customers already within their grasp and look for ways to create additional business for them.
Leads to referrals. Your focus on customer satisfaction, an integral part of your customer retention efforts, can also lead to new customers through referrals via word of mouth or social media.
According to a blog by DCR Strategies, a prepaid financial services and loyalty program provider, word-of-mouth marketing comes from loyal customers who believe in your brand.
"Repeat customers are more likely to share their positive experiences with like-minded people, essentially becoming free advocates for your business," the blog adds.