Many business leaders think that having a great product or service and being good at customer service automatically translates to a high level of customer retention. Unfortunately, the reality is quite different. You have to earn the loyalty of your customers, and that involves more than just a smiling cashier and a well-made product or service. Failing to have a strategy in place specifically designed to retain your customers is a surefire way to reduce your revenue and pull the brake on your business growth.
Read more: The Customer Retention Playbook
These are just a few of the reasons why you need to take your customer retention strategy seriously:
1. Replacement is more costly than retention
Retaining your customers can be expensive, but it is a small cost in comparison to trying to convert new ones. Depending on your industry and which research you put your faith into, customer acquisition can cost between five and 25 times more than retention.
Imagine all the trouble you went through trying to convert a new customer. Sales funnels, social media campaigns, careful targeted blogging and physical advertisements, elevator pitches and negotiations; it's a lot of work to convert. Add into the mix that from 2014 to 2022, the cost of customer acquisition increased 222 per cent.
By comparison, retention is far a easier and effective strategy, and failing to use that to your advantage costs you money.
2. You could lose out on a 95 per cent profit increase
How many customers need to stay with your business to increase your profits by 25 per cent? According to Bain & Co, chances are any number you've just thought of is too high. According to one study, a mere 5 per cent increase in customer retention can boost your profits by a quarter—and that's just for the financial services industry. Other businesses could see up to a 95 per cent increase.
A mere 5 per cent increase in customer retention can boost your profits by a quarter.
This is due to one simple fact: return customers buy more frequently from your company over time. Rather than a one-and-done transaction, they keep coming back for more and more—potentially bringing their friends with them as well. A small increase can make a significant difference to your profits.
3. Repeat customers spend more
Not only do repeat customers tend to buy more frequently, but they also tend to spend more per visit. Sixty-seven per cent more on average according to one study. Not a sum to sniff at, and certainly worth implementing a strategy focused around retaining your customers, especially your top paying customers. In a 2023 ecommerce study, the loyal top 10 per cent of customers spent twice as much per order than the lower 90 per cent. Meanwhile, the top one per cent of loyal customers spent two and a half times more per order.
The moral of the story is: better take good care of them. Otherwise, you'll fall behind.
If you want to know more about customer retention strategies, check out our free guide to customer retention strategies below.
