It’s cheaper to retain a customer than it is to acquire one
Sticking with the retention element of the growth model I talked about in my last article, I want to explore the fact that it is cheaper to retain customers than it is to acquire new ones and what influence this is having on many companies’ behaviour. Studies have suggested that it is anywhere between 4 to 7 times more expensive to attract a new customer than it is to retain your existing. Then how can it be that that the majority of businesses don’t value their existing customers anywhere as much as gaining new customers? The stats contradict themselves in that most companies know that it is cheaper to retain customers than it is to acquire, but still don’t focus on retention strategies.
The stats below give an indication of the scale of the problem:
30% of companies say they are ‘very committed’ to relationship marketing
46% say they are committed ‘to a certain extent’
22% say they don’t do any relationship marketing
*Luke Brynley-Jones, our social times
These figures are very surprising given the evidence that is out there suggesting you get greater ROI from retention strategies than acquisition. With an existing customer you will have less to spend on outreach as they have already experienced the purchase process with you. You should have already provided a high quality service to them and therefore many of the barriers that you would face in a new acquisition have been overcome. Less cost will be needed to influence the next sale. Satisfied customers will not only continue to use your products they are also much more likely to help you get a new product offering off the ground by being the early adopters of it.
So the facts speak for themselves. An effective retention and relationship strategy is essential to your company’s success. Why more companies aren’t engaged with it is still confusing me and I hope my comments stir your thoughts on the subject and I encourage you to invest time and effort in relationship marketing. As Luke Brynley says ‘There seems to be a collective ignoring of common sense that is driving companies away from their existing customers and, instead, focusing their time, energy and budget on acquiring expensive new customers – even when they know that costs will be higher and ROI lower’.
Next week, I aim to share my thoughts on gaining your full share of potential business from your hard won and well looked after existing customers.