Why bother keeping an eye on your current customers if there’s a whole world of potential new customers ripe for the picking, right?
Unfortunately for everyone, that seems to be the mentality of quite a few businesses, and it couldn’t be more wrong. While there may be a short term gain in acquiring new customers, a model that primarily focuses on converting new vs. keeping old customers will lose in the long run.
Understanding the importance of customer retention is the first step in building customer brand loyalty, which is to say, establishing a group of people who regularly choose your brand over competitors regardless of price and convenience. Having this loyal base not only stands to improve your bottom line (after all, it costs 7X more to acquire new customers than it does to retain existing ones), but allows you to fearlessly experiment with new offerings, get valuable feedback and benefit from a number of other advantages.
Keep reading to learn the top 4 reasons why you shouldn’t ignore the importance of customer retention.
1. Your retention efforts today will impact your revenue tomorrow
Adobe reported that online retailers spend nearly 80% of their digital marketing budgets acquiring shoppers. But for each 1% of shoppers who return for a subsequent visit, overall revenue will increase by approximately 10% - meaning if online retailers retained 10% of their existing customers, they would double their revenue.
Consider the flipside: “Actively disengaged” customers, defined as “people who oppose the brand and may be actively spreading that opinion”, can cost a brand 13% of its revenue. It’s also interesting to note that the global average cost of a lost customer is $243.
Simply put, customer retention is a more valuable pursuit than acquisition – it’s making the most of what you have and making what you have work for you. Case in point…
2. Loyal customers draw in more customers
People are strongly influenced by referrals from friends and family. 81% of consumers say their purchase decisions are influenced by feedback from acquaintances and 30% say they’re more likely to respond to brand offers when they’ve been shared directly by a personal connection.
It’s worth noting that millennials specifically are very vocal about their brand opinions, whether positive or negative. 90% share their brand preferences with their online networks.
Word of mouth brand endorsements carry a lot of weight among consumers, so let your customers be your own grassroots marketers. In general, people are 4X more likely to buy when referred by a friend.
Customers’ honest opinions about your service, products and brand image carry more sway with fellow consumers than what you have to say about yourself. Focusing on optimizing the experience of current customers will guarantee the reviews they share attract, instead of repel, new business. And you should care because the Customer Lifetime Value of new referred customers is 16% higher than those who find you on their own.
For tips about increasing customer satisfaction, check out our blog: 7 Ways to Make a Good Retention Rate Even Better.
3. Loyal customers are more profitable
According to research, engaged consumers make purchases 90% more frequently, spend 60% more per transaction and are 5X more likely to indicate they would be exclusively loyal to a brand in the future.
Customers who are not engaged with a brand tend to make purchase decisions based on price and convenience. This means that when costs rise with one brand, a sometimes necessary business decision, disengaged customers will churn and seek a better deal elsewhere. Already loyal customers, on the other hand, are much more likely to remain loyal.
Netflix, who enjoys a large segment of dedicated subscribers, is leaning into this idea as they lay out plans for a price increase. Says Business.com, the streaming giant “thinks that because [loyal customers] have been with the service for this long there’s no need to worry about them leaving in revenge.
“This reveals the strategy Netflix has been adopting for some time. The idea was that if customers became used to the service they would be less likely to abandon that service if something adverse happened.”
The same is true for customers loyal to any type of business. As you implement price and policy shifts, your most engaged customers are the ones who will stick around and ride out the changes.
4. Loyal customers are curious
Finally, a lot of the fun in running a brand comes from innovating your product and service lineup. But it’s definitely not fun to introduce updates that no one engages with.
Because repeat customers enjoy doing business with you and have bought into your brand philosophy as well as your products, loyal customers will look for ways to grow and deepen your relationship. These are the people who are more likely to peruse your brand’s other offerings and expand their purchases into other products or services. What’s more, they’re the ones who are actually excited for new products and will share their excitement with others, which brings us back to the whole word-of-mouth point.
The Bottom Line
Don’t underestimate the importance of customer retention. Focusing on retention is the first step in building a community of people who care about your brand and your products.
Instead of throwing all your resources behind building a larger pool of customers, create an environment where people feel good about the purchases they make – they’ll then make larger, more frequent purchases, share their brand enthusiasm with their personal connections and remain loyal through changes. New customers simply won’t do the same.
Are you interested in optimizing your customer retention strategy? Find tips for driving customer engagement (especially within the much-coveted millennial market), reducing churn at critical lifecycle junctures and more in our eBook, "The Insider's Guide to Customer Retention", available for download here!