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 relies just as much — if not more — on keeping customers as it does on gaining new ones. Using your existing clients as a key growth driver is quicker and cheaper than depending on one-time buyers to boost profits. In fact, increasing retention rates by only 5 percent can raise profits by 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 essential to know the lifetime value of your customer and those customers who could help build stronger relationships. Losing a customer that brings in $100 a year might not look like a major loss, but if that customer could have generated $100,000 a year, your loss benefits your competitor.
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 acquisition nor retention should work in isolation. If your retention strategy is weak, acquisition isn’t an effective means for growth — and vice versa.
After all, you can’t keep a bucket full when there’s a hole in it. Intertwine retention and acquisition efforts by leveraging your retained clients to acquire new ones through references and referrals.
3. Look at your churn rate. It isn’t uncommon to calculate churn by only accounting for those customers who’ve canceled services. But fair warning: That tactic is an oversimplification and can skew your results.
Losing one store shouldn’t hold the same value as losing a chain with 1,000 outlets. Understand the exact percentage of your churn, and then determine its root cause.
4. Crunch all critical numbers. It’s one thing to measure retention rates; it’s another to quantify their quality. Understand the potential lifetime value of your customers, and use this to set service-level agreements and key performance indicators around both retention and acquisition.
While doing that, ask yourself: Do you have an acceptable growth rate for both? Are you tracking references and referrals? What about the time invested by leadership to strengthen existing relationships? You need strong analytics around your current client base to gauge the success of your efforts or the potential for issues.
5. Map the customer’s journey. Engaging customers throughout their journey is essential to a strong retention strategy. Map their path from awareness to purchase, and understand the ins and outs of their businesses, pain points, and competition in their marketplace.
With 80 percent of your revenue coming from 20 percent of your customers, a high-functioning retention engine is the ideal distribution channel for emerging products and services; that engine needs a map to track the course.
6. Never lose sight of your current client base. Remember that your client base is why you exist. Develop a strategy that focuses on existing clients to encourage growth. Their satisfaction creates a base for strong growth, positive referrals, and development of adjunct capabilities, enhancing the potential for acquisitions.
It’s surprising how many organizations lack cadence, rigor, and investment in their retention. As growth and competition continue to heat up, retention should demand more focus.
With the technology and analytics available, as well as omnichannel journey mapping, the retention lever can be your most powerful weapon — one that can meet or exceed growth goals. Let your strategy become more balanced, and look at acquisition and retention through a new lens. Intertwining the two should give you the upper hand.
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