Retention marketing has traditionally taken the backseat to acquisition efforts. Many businesses waste effort and money trying to gain new customers instead of paying attention and rewarding their existing paying customers. According to Joseph Jaffe, a marketing thought leader, most organizations spend around 90% of their marketing dollars on gaining new customers when new customers only account for around 20% of the revenue.
Although it is unrealistic to say that every customer has the potential to be profitable and long-term, moving to a retention led strategy is vital to your bottom line. Here are three reasons your business should focus on customer retention.
1. It’s cheaper than acquisition
On average it has been found that acquiring new customers costs five times more than keeping existing customers. With this information it’s safe to say that the value of customer loyalty and retention exists. With the number of marketing tactics constantly increasing it makes sense that acquisition programs and budgets must continue to increase to see new customer numbers go up. However, retention and loyalty programs can be valuable and cheap.
What are retention strategies that you can implement for your business? The two most effective digital marketing tactics for customer retention are email marketing and social media. It just so happens that these are also two of the cheapest tools. Sending a simple birthday email or personalized message to a specific group of customers helps to keep your current customers engaged. Staying in contact with your customers is the first step in building a sense of customer loyalty.
2. Loyal customers purchase more
Don’t drop the ball after your initial sale. Current customers are much more likely to continue purchasing and to purchase other products from your business. The probability of selling to an existing customer is 60-70%, while the probability of selling to a new prospect is 5-20%. Show value to your current customers after their first purchase, and follow up. This will help show how much you value their business and really care. It is more likely that you will have repeat business from a person that trusts your brand and the service you are offering.
The opportunity to cross sell or upsell other products is then much more common with loyal customers. Existing customers are 50% more likely to try new products and spend 31% more when compared to new customers. When you are launching a new product, chances are you will be much more successful with current customers than your prospects. Existing customers can also help promote your product. Brand advocates will share their experience with their friends and those in their network. World of mouth is not only free, it is one of the most credible forms of advertising.
3. Engaged customers are more profitable
According to research, engaged customers deliver 23% more revenue and profitability over the average customer. When this is combined with the study by Bain & Company, that found increasing customer retention rates by 5% increases profits by 25% to 95%, it is impossible to argue with the importance retention.
Selling to existing customers will be less focused on price. But to market to your current customers successfully you need to know who they are. By continuously focusing on customer retention you can get a much better idea of who your customers are. The data that you gather can be used to further personalize and promote your brand to the right customers at the right time. Understanding your best customers will increase ROI. Create a variety of membership retention strategies for these loyal customers. This loyalty program can show them that your business values them. Retention is vital to understanding your customers as 61% of customers take their business to a competitor when they end a business relationship. Following a retention marketing led strategy can show your customers what they are worth to you.
Don’t Underestimate the Power of Retention
Although both customer acquisition and retention are vital to a company's success, customer retention is the key to sustainable growth and profitability for your business. It has been shown over and over again that 80% of a company's future profits will come from 20% of their customers. By focusing on retaining the customers you have you are building a deeper, more profitable relationship with your customer over the long term. Staying in contact with your customers and focusing on the value you add helps to increase repeat sales, referrals and builds a customer base that you know and understand.