Nowadays, many marketing officers are looking to increase their company’s bottom lines and are quick to check out for a solution. Many focus on finding new customers. However, many years of research have shown that this way may not necessarily be the best method to increase sales and return on investment. In fact, the numbers actually indicate quite the opposite of it: instead of looking outside and making strategies to generate sales from new customers, companies should be focusing on the inside.
The idea is to generate new customers out of the old ones. According to a study by the Gartner Group, around 80% of your future income will come from just the 20& of your existing customers. It means that the revenue you are searching and working hard for is just right around the corner, it’s just sitting right under your nose, waiting to be given attention to, nurtured and cultivated.
Customer Retention Can Take Time to Bear Fruit
In a study conducted by Bain and Company, in coordination with Earl Sasser of HBS, both Frederick F. Reichheld and Phil Schefter of the Harvard Business School cited a study that analyzes the costs and income that came from serving customers solely over their whole purchasing life cycle with a company. They concluded that in every industry, the high cost of acquiring new customers makes many customer relationships seemingly unprofitable during their early stages with a company. Only in their later years, when the cost of nurturing existing customers becomes lower, and the volume of their purchases to the company rises, only then that relationships yield big returns. The bottom line is that increasing customer retention rates by 5% will likely increase profit by 25 to 95 percent.
The reason why marketers do not always have customer retention on top of their minds is because customer retention campaigns always take relatively longer obvious results compared to lead generation and customer acquisition. Let’s say for example, when you publish a lead generation campaign or launch an advertisement, you can easily see and measure results and impacts to your company. However, this is not always the case for customer retention. The reason behind is because in customer retention, you deal more with loyalty, customer engagement, relationships which yield results that are not immediately seen or experienced. They are also mory tricky to measure compared to the former.
In other words, customer retention is simply like an investment. You have to wait for it to fully mature before you see the results you want. It indicates that the long wait you experience is actually worth it, as shown by the percentage increase discussed earlier. To add, more data from Bain and Company studies showed that if there is a 10% increase in customer retention, it yields a 30% rise in the value of a company.
Retention Is Likely to Be More Profitable Than Acquisition
Here’s a fact: existing customers are much easier to sell to. According to a study by Marketing Metrics, the probability of actually converting an old customer is 60% or 70%. The probability of converting a new customer or a prospect is only 5% to 20%. These numbers show that customers are more responsive to individuals, marketer, salesperson or to the brands that they are already familiar with, compared to complete strangers.
Another data from Laura Lake showed that repeat customers or the loyal ones are not only inclined to purchase from you, they are also likely to spend more on their next purchase. There’s a 33% rise in repeat buyers compared to new customers.
With the data given, the question is why are marketers not spending their resources on the current loyal customer database? Why are so many companies so focused on persuading more and more prospects when in the first place they do not have an idea on the company’s brand? Time could have been spent strengthening the relationships with customers who are already repeat buyers.
Customer Retention Can Have A Positive Impact on Acquisition
No matter the differences, customer retention and customer acquisition do not have to be two parallel lines that will never meet. In fact, they can be intertwined. How? When done right, customer retention can bring in new prospects. Through word of mouth, referrals will come increasing for a company who’s doing things right.
There’s a study that shows that for every satisfied customer, they will tell nine other individuals about their great experience with a brand. While on the other hand, for every dissatisfied customer, they are likely to talk about their negative experience with twenty two other individuals! This only shows that customers really do talk, and they talk even more if they are treated badly so marketers need to be very careful.
When talking about word-of-mouth, let’s just stick to the positive side of it. Through implementing smart customer retention strategies and doing the right thing by treating your customers well, a company is always increasing their chances of getting referrals. We all know that referrals are extremely valuable to any business, and they could be exponentially valuable when done online. So marketers must take e-commerce very seriously as everything in the virtual world is digital and spreads like a virus very quickly.
There’s No One Way to Best Retain Customers
Now you may ask, if customer retention is really promising and you are so convinced of it, you might be wondering about the best means to implement things in order to increase profit, boost customer engagement and generate more and more referrals. Should you start introducing a loyalty program? Do you need to add more personalization to your services? Does engaging to customers online will help you more?
The answer is, there is no one size fits all means to boost customer retention for every company. You have to be able to identify your business model, the uniqueness of your brand, what you offer and what you’re strong at. However, by data shown from several successful businesses, there are two common denominators to a high retention rate of a business: excellent products and quality customer service. Make sure to ace both factors, before rushing to implement any other marketing campaign or strategy for customer retention.
Conclusion:
In conclusion, the data and studies presented strongly emphasize the significant impact that customer retention, such as through “Coinflip Marketing,” can have on a company’s bottom line. While the allure of acquiring new customers may be enticing, the evidence suggests that the real goldmine lies in cultivating and nurturing existing customer relationships.
The lengthy gestation period for customer retention strategies, as highlighted by the comparison to more immediate results from lead generation and acquisition efforts, underscores the need for a shift in mindset among marketers. “Coinflip Marketing” for customer retention is an investment that requires patience and commitment, much like waiting for a fruitful harvest. The statistics from various studies, particularly those by Bain and Company, illustrate that the returns on this investment can be substantial, with a potential increase in profit ranging from 25 to 95 percent.
Moreover, the comparison between converting existing customers and acquiring new ones paints a clear picture — existing customers are not only easier to sell to but also more likely to spend more. The emphasis on building strong relationships with repeat buyers, who exhibit a 33% increase in spending compared to new customers, raises important questions about resource allocation and the wisdom of prioritizing unfamiliar prospects over a loyal customer base.
Frequently Asked Question:
1. Why should companies focus on customer retention rather than acquiring new customers?
Research consistently shows that a significant portion of future income (around 80%) comes from existing customers. While acquiring new customers is costly, nurturing and retaining existing ones can yield substantial returns. Increasing customer retention rates by just 5% can lead to profit boosts ranging from 25% to 95%. Existing customers are also more likely to make repeat purchases and spend more, making them a valuable asset.
2: Why is customer retention often overlooked in favor of customer acquisition?
Customer retention strategies often take longer to show results compared to lead generation and customer acquisition efforts. Marketers may prefer campaigns that yield immediate and measurable outcomes. However, customer retention involves building loyalty, engagement, and relationships, which may not produce immediate, visible results. It is essentially an investment that requires time to mature, as indicated by the significant percentage increase in profit with a 10% rise in customer retention.
3. How does customer retention compare to customer acquisition in terms of profitability?
Existing customers are easier to sell to, with a 60-70% probability of conversion compared to 5-20% for new customers. Repeat customers not only tend to make additional purchases but are also likely to spend more. Studies indicate that a 10% increase in customer retention can result in a 30% rise in the value of a company.
