Customer Retention Costs Less than New Customer Acquisition

In our super-sized world of big business, customer relationships have fallen by the wayside.  In the past, the small business owner had a “corner store” and knew all of his customers by name and had their preferences committed to memory. In today’s market, a small business might have thousands of customers and the owner may hardly know a single one.

The connection between the proprietor and customer is often a missing component for businesses even though common sense tells us that a customer that feels special or important has a much greater propensity to stay with a company. Instead of concentrating on knowing the customers they already have, businesses have taken to spending money on acquiring new customers, in the “bigger is better” mentality.

Studies show that acquiring new customers actually costs more than investing in your current customers. Research from Bain & Company shows the increased value of customer retention versus acquisition:

  • Acquiring a new customer can cost 6 to 7 times more than retaining an existing customer
  • Over a 5 year period customer attrition rates could reach as high as 50% if databases are left dormant
  • Businesses which boosted customer retention rates by as little as 5% saw increases in their profits ranging from 5% to a whopping 95%.

So how can businesses go about spending time on retention instead of acquisition? Here are some tips for business owners today:

  1. Database marketing can be used to personalise messaging, and that surely helps go a long way towards making customers feel special again.
  2. Communicate with customers through email and social media.
  3. When you segment your email list, you can communicate with your customers on a more personal level and mention their past purchases, or preferences they have indicated in the past.
  4. Social media channels can create a sense of community and belonging; the focus in these social channels should be about engaging in conversation and communication, it is not a medium for strictly sending sales messages.
  5. Consider the 80/20 rule which tells us that on average 20% of your customers will account for 80% of your revenue. Concentrating your efforts on that smaller 20% will cost less and bring in more.
  6. Getting to know your customers, understanding their motivation for purchases, and the real reason behind why they buy from you will go a long way towards customer retention and increasing profits.

 

Conclusion and Summary:

In some cases, the path to a new idea is through an old world idea.  Making customers feel special, like in the days of the old corner store proprietor can gain you sales and increased profits, even (or especially) in today’s digital world.


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