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Why customer retention is cheaper than acquisition 

Written on 10 August, 2018 by Jen McKinnon
Categories: digital marketing

Ask any business owner today, “what’s your marketing strategy?”, and they’re guaranteed to launch into a list of their client acquisition tactics. It’s far rarer for a business to focus on retention. While customer acquisition tactics ensure a stream of new customers to your business, customer retention works towards maintaining a fruitful relationship with your existing customers. Both are important but, despite retention being far cheaper than acquisition, bringing in a greater return and being far easier to execute, the bias is generally skewed towards acquisition. So, if retention brings about a more consistent ROI, why is acquisition always the priority? 

What is churn? 

To understand the importance of retention, first you need to understand churn. Churn is the opposite of retention. Your churn rate is the percentage of customers who sever ties with your business and are no longer a customer. It is generally measured by month, quarter or year and is a metric that provides the opportunity for your business to grow and improve. 

The best way to counteract churn is to get to the bottom of why your customers are leaving and then solving that problem for future customers. However, you can’t solve every customer’s problem. That’s where retention marketing comes in. Retention marketing is basically a combination of churn-prevention tactics that make your existing customers feel valued.

Acquisition vs. retention

It makes perfect sense to want to acquire new clientele, but are you placing too high a priority on acquisition? Keeping your existing clients on the hook is just as important and can be simpler, cheaper and more efficient than churning through new customers. Retention is what establishes your business as a reputable brand. 

Did you know that acquiring a new customer can be up to 25 times dearer than retaining an existing customer? That’s due to the density of the work associated with the acquisition of a client. If you’re coming in cold, it’s going to take significantly longer with a much higher touchpoint frequency to get them to bite. With retention, you've already done the hard work. 

At the top of the sales funnel (above), when a customer is cold, the focus is on brand awareness – getting the audience to see and recognise your brand. Once a customer can recall your brand, it’s then time to get them to take an interest in your brand through exposure to your products and services. If the consumer becomes interested in your offering, they may continue to the consideration stage where they will be looking at the product or service benefits. Finally, after they’ve weighed up the benefits and compared your product or service within the market, they may make a purchase.

As you can see, the acquisition process is long. You must be vigilant with the consistency of your advertising messages and brand story and fulfil each step before the prospective customer even contemplates handing their money over. However, once a purchase is made, the consumer becomes a customer and the retention process starts. Your business needs to invest in all these opportunities to persuade a single customer to take a chance and make a purchase, but once the customer is on your side, the process is simplified. To retain your customers, you just have to ensure the client you already have is happy. If you can continue to provide value to your clients, customer retention is easy.

So what’s the difference in cost? 

Not only will a high customer retention rate improve your reputation, it will also improve your bottom line. When you invest in customer retention, you’ll see a long-lasting return on investment with the benefit of continuous profit.  

By taking care of your existing clients and increasing your retention rate by just 5%, you could see a rise in profits by anywhere between 25% to 95%. That’s a pretty huge number to look past. The best part, however, is the fact that the investment risk is mitigated by the fact that you already know that the consumer is interested in your product or service. Investing in a substantiated, paying customer is much safer than pouring your money into reaching consumers blindly for the first time. 

What are the benefits of investing in customer relationships? 

If the reduced expenditure paired with a higher return on your investment isn’t enough to convince you that retention marketing is necessary, there are extra benefits to consider. Retention is all about the relationship you build with your customers. If you provide value to your client while also making them feel valuable, you’re onto a good thing. From there, you can expect to see: 

Higher engagement rates 

It’s like the pram theory. They say that when you don’t have a child, you never really see prams - you’re not tuned in to them – but, the minute you have children, you see prams everywhere. Once something is on your radar, it’s hard to unsee it. This means that people who have invested in your products and services before, are more likely to respond to the marketing material they see and less likely to filter it out.  

The more committed to a brand a customer is, the more they will engage with the marketing material you put out there. And, if your existing customers are engaging with your marketing material, it puts you in good stead when it comes to social proof. 

An increase in purchase frequency 

If you can get your customers to commit to your brand by consistently providing value, they are likely to purchase more often and, when they do, they’re likely to spend more money. Trust is a powerful thing and, once you secure your customer’s trust, not only will they purchase more frequently, they may start to show interest in your other products or services.  

Higher regard within your market 

Make your existing customers your very own brand advocates. There is no marketing more powerful than a personal referral. Repeat customers are more likely to share your brand with family and friends, building your reputation and increasing your reach organically. 

 

Retention marketing should be part of any long-term marketing strategy. Without it, you’re likely to churn through customers at a rate of knots. Due to ever-evolving digital technology, it is possible to send highly personalised messages en masse. Tools like Google Search and Managed Social Advertising allow you to segment your customers and target them based on a plethora of demographic-, interest- and behaviour-based factors, making their experience with your brand more streamlined and enjoyable. Chat to an online solutions advisor today about the digital advertising tools you can use in four retention marketing strategy.