It’s probably not the biggest news flash of the day that holding on to your current customers is easier, cheaper, and all-around better for your business than the alternative.
The alternative is what’s known as “churn.” Churn is the term used to describe the percentage of customers that stopped using your product or service during a certain time frame.
Businesses work hard to get their customers and need to keep working hard to retain them. The best businesses understand that creating a process that cultivates trust, communication, and loyalty is worth the work. There’s never a time when you can sit back, put your feet up and decide you don’t have to do the work. Not if you still want to be profitable and grow your company.
What are the benefits of having high customer retention? What are the real-world outcomes and metrics for this? Does it truly matter if you create a business where customers swim through your system? Do you expect hordes to enter your pipeline and then exit at the other end to find new places to spend their money? Is it reasonable to think you can experience high retention rates? Are there downsides to prioritizing and maintaining high retention rates?
The Stats on Customer Retention
Zendesk, the self-proclaimed international champion of customer service, released its 2022 Trends Report showing the impact of customer support on retention:
- 60% of business leaders say that customer service improves customer retention
- 47% of business leaders say that customer service improves their ability to cross-sell
- 78% of business leaders agree that service agents play a vital role in customer retention
- 73% of business leaders say there is a direct link between their customer service and business performance
- 81% of customers say a positive customer service experience increases the likelihood they’ll make another purchase
- 76% of customers say they would switch to a company’s competitor due to multiple bad customer service experiences
- 74% of customers say they will forgive a company for its mistake after receiving excellent service
These stats go a long way toward proving that customers have a lot to say about what reasons they would stick with a company or organization and how they want to be treated. Customers are no longer silent and unwilling to let you know how you’re doing and what they expect you to do better.
That’s good news. You don’t have to look far to find reasons your customers stay or why they go. Nor do you have to look far to find examples of companies doing it right and have, by their example, given you helpful tips on being great in your corner of the business world.
On a global scale, we can say that customer retention is important for ROI, customer loyalty, and company growth. These are all compelling reasons to keep your customers and their wallets close.
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Ali Cudby, CEO of Your Iconic Brand, author of Keep Your Customers, and adjunct professor of entrepreneurship at Purdue University, often asks this trick question: Should you focus your business resources on acquiring new customers or retaining current customers? According to this triple threat business guru, the answer is “never either/or.” It’s always both.
She often sees business owners making acquiring new customers a priority over keeping current customers because the metrics of new customers are black and white while the metrics of customer retention are more often shades of gray.
7 Reasons Why Customer Retention Is Important for Your Business
Let’s see if these seven reasons convince and encourage you to put your energy and effort into prioritizing customer retention.
Reason #1: Getting new customers is more expensive than keeping current ones.
More than two-thirds (70%) of respondents to a recent survey conducted by Salithru agree that it’s cheaper to retain than acquire a customer. The same survey also shows that it costs five times as much to attract a new customer than to keep an existing one.
But an interesting article by Blake Morgan, a “Customer, Experience Futurist, Author, and Keynote Speaker,” poses the question, Does it Still Cost 5x More to Create a New Customer Than Retain an Old One? Blake took a new look at this old saying and tested it against new ways and models of doing business in the 21st century.
This 5x rule was based on old ways of producing goods — mass production — and on business models that valued “pushy sales tactics.” He insists that what really matters is connecting with customers and delivering value.
This new way of calculating the cost of attracting new customers is by considering a customer’s lifetime value. Also known as a CLV, this number refers to the potential of a customer in their future and, hopefully, an ongoing relationship with a particular business.
In spite of this suggested strategy, there’s still a strong feeling that it costs more for a company to get new customers than it does to retain the ones they already have. No matter the number, it’s still more cost-effective to keep a customer than to acquire new ones.
SaaS Database suggests conducting a CAC (customer acquisition cost) to accurately estimate how much it actually costs to attract and acquire new customers. The article is well worth a read and includes seven tips on how to lower customer acquisition costs:
- Retarget: build campaigns that feature ads directed at specific website visitors to convert their interest into purchases.
- Add value: Offer a roster of incentives beyond the product or service you sell.
- Pay attention to visuals: Post the best possible photos, images, and visuals of your products or services.
- Automate marketing: Using a Customer Relationship Management (CRM) tool may be a hefty investment, but in the end, it results in an “overall lower customer acquisition cost.”
- Invest in content marketing: Quoting Bill Gates when he said, “Content is king,” the article affirms that providing content is about more than simply providing information.
- Implement a referral program: Reward your customers when they recommend your product or service and watch your customers’ lifetime value and retention grow.
- Add CRO to your website: CRO stands for Conversion Rate Optimization and is the process of “optimizing your company website” to up the chances a visitor to your site will click through to subscribe, fill out or register for something you’re offering.
Reason #2: Losing customers to the competition costs. A lot.
Forbes released an article stating that U.S. companies lose $136.8 billion annually due to avoidable consumer switching. What contributes to this jaw-dropping number?
In 2020, 40% of consumers said they’d stopped doing business with an organization because of its poor customer service. Fully one-third of customers aged 23-38 quickly changed brands when their expectations weren’t met. And nearly 50% of customers were willing to admit leaving a brand they’d previously been loyal to in search of a competitor they felt took better care of them.
In a 2019 article about the true cost of losing a customer, Advantage Communications reported that:
- 89 percent of consumers started to buy from a competitor after having a bad experience. (RightNow Technologies)
- It takes 12 positive experiences to make up for one bad one. (Understanding Customers by Ruby Newell-Legner)
- Consumers tell twice as many people about poor experiences than positive ones. (White House Office of Consumer Affairs)
In a companion article, they looked at another study from the White House Office of Consumer Affairs that determined that average, loyal customers are worth as much as 10 times the amount of their first purchase.
Reason #3: You gain invaluable customer feedback and data.
When you focus on your existing customers, you get more value from your marketing budget and waste less time beating the bushes. The reason for this is that your current and loyal customers will, given a chance, let you know exactly what they like, what they don’t like, and everything in between.
Current and loyal customers are the definition of the avatar of customers you want to attract. They’re already a good fit, and when you understand why they make buying decisions, you’ve unlocked the mysteries of attracting new customers.
By staying in touch through content marketing, email marketing, and social media, you can contribute to their buying experiences. In return, they will be more likely to give you feedback through surveys and focus groups.
Startquestion lists seven top reasons why listening to your customer feedback is so important. As your existing customers shape your ideal future customer, they’ll let you know if they would be willing to buy a new product or service you might offer and how you can improve the ones already available through your business. You can tailor the most specific questions regarding your offerings and get invaluable opinions and feedback on how to solve their problems and fulfill their needs.
Reason #4: Your promotional expenses and marketing costs are reduced.
Powerful marketing and promotional strategies shouldn’t be limited to the quest to acquire new customers. In an effort to cut your costs, Entrepreneur recommends you “narrow your focus and ruthlessly market to the types of customers that convert and stay with you over the long term.”
One of the most effective types of marketing is called referral marketing. And one of the most effective ways to capitalize on referral marketing is to reward your current customers when they do the marketing and promotional work for you. Adding an incentive rewards program to existing customers can give you unprecedented returns on investment. When your customers think you’re great, this will be a no-brainer for them and for you.
Work done by the Tempkin Group states that 77% of customers recommend a brand to a friend after just one positive experience. Many businesses fail to grasp that if they were to invest in creating relationships with these customers, they’d scale their marketing and promotional efforts in ways that go beyond many marketing budgets.
Reason #5: You’ll have built-in brand ambassadors.
According to Yotpo, 60% of customers will tell friends and family about a brand they’re loyal to. In a separate finding by the same company, 59% of loyal customers are more than willing to refer that brand to their friends and family, join their loyalty program, and 36% are willing to spend more.
When it comes time to refresh your marketing strategy, Patricia Rioux of Odea is sure that “out with the old, in with the new” isn’t an adage that applies. She claims that existing customers become your most powerful (and unpaid) brand advocates.
These brand ambassadors probably don’t even realize the work they’re doing.
While the characteristics of a successful brand ambassador include attributes like:
- a basic comprehension of marketing
- insight gathering and reporting
- an engaging online presence
- a community leader
- someone who is excited in an authentic way
It’s easy to see that some of these characteristics are the same as those of an excited and happy customer.
For every success story these customer brand ambassadors tell, whether online or in person, your reputation and desirability increase.
Reason #6: Retained customers buy more often and spend more than newer ones.
Many sites say that 60-70% of existing customers are more likely to try new products and spend more than new customers. Once your customers experience the value of your offering, they’ll keep coming back until they find a reason not to.
Markinblog says that “loyal customers spend 67% more than new customers.” And according to Morning Consult, 67% of Gen Xers and 75% of Baby Boomers report that when they find a product they like, they’ll come back and buy it again.
Access Development puts the numbers even higher. According to their research, engaged customers buy 90% more often and spend 60% more per purchase. They’re also five times more likely to signal their loyalty to the brand.
Reason #7: Your employee’s confidence gets boosted.
When your employees can build relationships with loyal and committed customers, their morale and job satisfaction increase. Another article from Access Development describes customer retention as relationship building.
We like how their perspective mentions:
“To a business, being relational makes everything easier. Customers are less likely to fly off the handle at the first sign of distress. That protects your revenue and makes life easier on your employees.”
Come to think of it, viewing your customer retention goals as relationship goals applies to all parts of a successful and healthy business. Good relationships can lower anxiety and depression, lift self-esteem, build empathy and lead to more trusting and cooperative relationships.
And it seems to us that as businesses and customers are made up of humans, having good relationships might be the best lens through which to achieve your customer retention goals.
Claudine is the Chief Relationship Officer at Level 6. She holds a master’s degree in industrial/organizational psychology. Her experience includes working as a certified conflict mediator for the United States Postal Service, a human performance analyst for Accenture, an Academic Dean, and a College Director. She is currently an adjunct Professor of Psychology at Southern New Hampshire University. With over 20 years of experience, she joined Level 6 to guide clients seeking effective ways to change behavior and, ultimately, their bottom line.
