Retention Is Fast Becoming the New Acquisition

Satisfaction drives loyalty. More importantly, it drives retention. The key to a healthy bottom line is the ability to keep your customers.

According to the book Outside In [click here for infographic] by Harley Manning and Kerry Bodine, retaining customers drives revenue in three ways:

– Incremental sales from current customers.
– Retained sales as a result of lower churn.
– New sales driven by word of mouth (referrals).

Can small improvements in retention make a big difference? Absolutely. According to Gartner Group, “A 5% improvement in retention can increase profitability by upwards of 25% to 125%.”

The Revolving Door Effect

Too much focus in marketing is on acquisition. The vast majority of spending is focused on getting prospects through the door and converting them to customers. Little attention is paid to their retention. For most companies this door represents a revolving door. Let’s use the insurance category to illustrate the point. The average insurance company maintains a retention rate of 80%. USAA, a leader in customer experience, retains customers at a rate of 97%. I recently heard Christine Moorman, the T. Austin Finch Professor of Business Administration at the Fuqua School of Business at Duke University, discuss how this plays out over a three year time frame. The results are eye opening.

Companies with 80% retention will have to replace over 50% of their customers every three years. Comparatively USAA only needs to replace less than 9% of its customer base over a similar three year period.

Retention of the Vital Few

Based on the Pareto Principle, for the vast majority of companies, 80% of profitability is driven by 20 percent of customers. These customers are your key accounts. Retaining these customers should be your top priority.

Over the next ten months, I will be exploring how companies utilize the Goldfish Rule to retain these vital few. Little extras that drive loyalty and referrals. My findings will complete the third let of the Goldfish trilogy. Purple Goldfish focused on customers, Green Goldfish focused on employees, and now the Golden Goldfish will focus on 20% of customers and employees.

Any good examples or best practices to share? How do you work towards retaining your Top 20%?