Customer retention can increase revenue and profit in a stronger way than constantly chasing new customers. New customer acquisition has a steep cost. Depending on your industry and service or product, it could cost you hundreds or thousands to find one new customer. Compare this to the significantly lower cost of serving and reselling to existing customers.
According to the book by Harley Manning and Kerry Bodine, Outside In, retaining customers drives revenue in three critical ways.
- Incremental sales from current customers.
- Retained sales as a result of lower churn.
- New sales driven by word of mouth.
You have likely read the various statistics that speak to the growth in revenue from just a small improvement in your retention rate. Or how it’s 12 times cheaper to keep a customer than replace one! For example, Gartner Group says, “A mere 5% improvement in retention can increase profitability by upwards of 25% to 125%.” That is amazing!
Of course, finding new customers is valuable, but how has your company specifically designed strategies to keep them? What effort goes into building an experience that is good, and is in fact, one that customers will want to repeat? A good product is not enough. After all, a good product, sold in a bad way will still drive people away. Just think about bad car dealerships that drive you from their store, and perhaps even car brand. I experienced that firsthand. A few years ago, I left Nissan because of a horrible dealer experience and, shortly afterward, an amazing experience with a dealer for a different brand. I had previously been a happy Nissan owner. I may never go back.
What have you done to design your customer experience to think in the long-term? Sure, consider what happens right after purchase, but what happens one month later? Six months later? What do customers need that you may be able to provide? How can you be helpful to your ideal customer? I would rather you spend time thinking about the long-term, and grow your business at a lower cost, than constantly spending tons of money to acquire new customers.
Think about it! Post your questions or comments below. Thanks.