Too often, we see companies focusing on customer acquisition over customer retention. But, this is a flawed strategy because it takes at least five times as much resources and money to acquire a new customer as it does to retain an existing one. Carefully nurturing your current customer base by providing them with the best products and services will yield you more success in the long run than spending time finding additional clients who may or may not be a good fit for your company. This article will discuss five reasons why retaining customers needs to be your number one priority and how to improve their loyalty.
When a customer leaves your company, it's not only costly to replace them but also damaging to your business. The churn rate is the percentage of customers who leave your company in a given period. And unfortunately, it seems to be on the rise these days. According to the latest data from Statista, the average US customer churn rate is between 11% and 25% depending on the industry.
The churn rate varies by generation as well. For example, Baby Boomers are more loyal to their brands than Gen Xers or Millennials. Studies show that millennials, who comprise the largest generation in the US, are two to three times more likely to churn than any other generation. However, they are also more likely to stick with a company if you give them what they want, which can simply be better customer service and support. Your business should have an exit strategy that will help retain customers looking for greener pastures elsewhere.
As for the reasons why customers leave, there are many. While some businesses lose customers to cost-cutting competitors, others lose them to value-adding players. But whatever the reason is for customers leaving your company, you can't afford to lose them. You must find out what's causing them to churn and take corrective action immediately.
Customer lifetime value (CLV) is the total amount of money a customer spends over their lifetime with your business. The higher the CLV or more loyal customers you have, the less expensive it will be to serve and retain than constantly acquiring new ones. Think about all the costs associated with attracting and converting new customers: advertising, marketing campaigns, salespeople's commissions, and so forth. You could be spending hundreds or thousands of dollars to acquire a single customer—and that is not sustainable in the long run. So, what can you do? Build relationships with your current customers by giving them personalized experiences through targeted offers they value, providing excellent customer service and creating a memorable customer experience.
If you're still not convinced that customer retention is more important than customer acquisition, consider the impact it has on your company's bottom line. High-CLV customers are less expensive to service and provide higher margins for your business, resulting in bigger profits over time. Research shows that increasing the customer retention rate by 5% will increase profits by 25% to 95%. This is because the cost of serving and retaining a customer is typically much less than acquiring a new one.
It's not just about the money, although that's a big part of it. A happy customer is more likely to refer their friends and family to your business, leading to even more sales (and lower customer acquisition costs). Customers love to buy from companies that understand their needs, have a strong brand reputation, and offer the best customer service. They enjoy being recognized by employees when they walk in, having offers personalized for them based on previous purchases or activities, receiving birthday discounts, and more.
Customers who feel appreciated will continue to purchase from you and refer others. No marketing effort or expense can replace the word-of-mouth (WOM) advertising they provide. It makes sense: people trust their friends' recommendations more than any other form of advertising. People are 90 percent more likely to trust and buy from a company recommended by a friend when they hear about it through WOM marketing, resulting in five times more sales than paid advertising.
Often, companies are too focused on acquiring new customers that they forget about the ones who have given them their business for years. This can be due to an over-emphasis of marketing at the cost of customer service or simply because no one is assigned to manage to maintain current accounts. But if you're not collecting data on your existing customers, you're missing out on valuable insights that could help improve retention rates.
Data such as past purchases, demographic information, and customer feedback can be collected through surveys or other methods. This data could reveal how your company's product assortment is performing in the market, which marketing materials are most effective with certain customers, why a customer chose to cancel their subscription service—and more. Utilizing this type of insight will help you identify areas to improve customer retention rates and make your business more profitable.
In brief, don't get it wrong. This article does not suggest that customer acquisition should be ignored but rather that customer retention should be a higher priority. When done correctly, customer retention can have a more significant impact on your company's bottom line than spending money to acquire new ones. Focusing on ways to improve relationships with your current customers will result in increased profits, repeat business, and positive WOM advertising.
Customer loyalty will not only increase the average lifetime value of each customer but also provide you with an understanding of how to market your products better. Understanding what makes customers happy and providing them with personalized experiences through targeted offers they value, excellent customer service, and more will result in higher profit margins than acquiring new ones because the cost is much less.
If you are looking for ways to improve customer satisfaction and retention, request a free demo to see how Interai can boost your customer service performance.