If you are losing customers at almost any rate, you are jeopardizing your business growth strategy. Every lost customer creates a hole that you must fill before you can claim any new customer growth. The more customers you churn, the deeper the gap before you can realize any revenue or profit growth.
What’s more, acquiring a new customer costs more than keeping an existing one. Some say as much as 25 times more, with one of the most conservative estimates from Invesp1 at 5 times more. Regardless, retention marketing is more affordable and has a better return than acquisition marketing.
There’s a large expense burden on acquiring new customers. The fewer new customers you have to gain to grow, the lower your acquisition marketing costs.
Losing customers has other repercussions, often not measured or even measurable. Every time you lose a customer, you risk losing a brand advocate. Depending on the size of your market and industry, this can have devastating long-term consequences. There’s no reason not to invest in retention marketing.
Less expensive than acquisition marketing, retention marketing is focused on your customers. It includes the activities associated with retaining customers and/or increasing customer value through re-purchasing or up-selling products and services. Retention marketing isn’t meant to replace acquisition marketing, but to work alongside it as part of your growth engine.
While you need both acquisition and retention marketing, you will get a better return from investing in retention marketing to keep customers than in acquisition marketing to acquire new customers. Most importantly, before engaging in retention marketing, you should know why your customers leave.
You know exactly who your customers are, how to reach them, and what products they have. You possess information about the operation of your product that is relevant to them. You should also know their unique needs related to your product or service, and therefore what new products or services might interest them.
The methods of reaching customers are less expensive than reaching prospects. Email, in particular, is perhaps the highest performing tactic for reaching existing customers—and it isn’t expensive. And because they are your customers, you have permission to contact them—within reason.
Engaging customers on your social media channels also creates a low-cost communications tactic. Although these tactics are low cost, without a strategy for using them well, you risk the customer relationship and goodwill.
Customer engagement is the sum of the interactions between a customer and a brand. Highly engaged customers typically buy more and become brand advocates, helping the brand become even more successful. Positive customer experiences can lead to highly engaged customers.
Retention marketing includes both customer experience and customer engagement, but there’s more. Retention marketing is also how you create communications and experiences that lead to improved customer engagement.
Retention marketing considers your customer segments, their needs and communications requirements, their products and business needs, and develops a strategy to address each of these segments with appropriate communications or interactions. And by “appropriate,” I mean relevant and timely at a frequency desired by the customers.
Southwest Airlines, among other great retention marketing strategies, monitors customer website activity and responds accordingly. If I search to get pricing for flights to L.A., but don’t book a flight, I will get an email from Southwest the very next day encouraging me to book my flight to L.A. before the promotional rates expire.
It's worth noting that even great retention marketing can’t replace a good product or good customers service. It can complement these, however, and help transition customers into brand advocates.
What is your retention rate, the percentage of customers returning or engaging with you? How do you measure it, and how do you know if it’s “acceptable” for your industry?
Measuring retention in a subscription model is straightforward: What percentage of your customers renew at each interval? Anything over 90% would be considered good in most industries, with room for excellence as you surpass 95%. Anything under 75% would likely be concerning.
The realities of business (e.g. business model, industry activity such as mergers and acquisitions, product lifecycle, etc.) could account for up to 5% attrition or more, depending on the industry dynamics.
If you’re business isn’t based on a subscription model, how do you measure retention? It may vary from business to business, but you could track repeat purchases, refills, re-orders, even automobile oil changes to gage your success at keeping customers. Without repeat purchases as a gage, look for some aspect of engagement that you can measure.
In the consulting services industry, for example, it would be worthwhile to measure customer satisfaction at the conclusion of the engagement, the percentage of clients that returned for additional work, even over long periods, and engagement with company newsletters and events. If a consulting firm never had a repeat engagement, that would certainly be concerning.
I’ve talked to start-up companies who are so focused on acquiring new customers to build the business that they don’t think they need to be worried about retention. So, when is the right time to be concerned about retaining those customers?
I’m going to say, even for start-ups, if you aren’t seeing repeat business at a high level, you should be concerned and discover why. You also should focus some of your energy on retention marketing. If not, you’re placing an undue burden on your acquisition marketing budget and its sustainability.
In my next post, I’ll discuss how to develop a retention marketing program. Please share your comments below.
1Invesp, Customer Acquisition Vs. Retention Costs – Statistics And Trends, https://www.invespcro.com/blog/customer-acquisition-retention/