Care for your customers – the numbers speak for themselves
but existing customers are worth cultivating.
But for the vast majority of companies, prioritizing the hunt for new customers over retaining old customers just doesn’t make financial sense. Time and again, studies have shown that existing customers are much more valuable than new customers that you have to actively hunt for.
If you or others in your organization still need convincing, here’s some inspiration for you.
New customers are many times more costly, and it takes three customers to make up for the loss of one
Far too many companies prioritize the wrong type of customer, and too many resources are wasted on landing new customers rather than working to retain existing customers. In fact, attracting a new customer is 5–25 times more costly than retaining an existing customer.
There are expenses for marketing, promotional campaigns, and onboarding – and they all have to be paid before the customer relationship even turns a profit. All of this makes attracting new customers expensive and less cost-efficient. For much fewer resources, you can execute a strategic project aimed at keeping your existing customers.
If you lose one customer, it generally takes three new customers to compensate for the financial loss.
For growth companies, success comes from the core
New business areas and other customer segments have a certain appeal – as logical growth engines. However, chances are there is significantly greater growth potential in focusing on your core business. This means optimizing your products and services – and selling more to your existing customers.
A large McKinsey study of leading American growth companies shows that on average 80% of growth comes from their core business. This is interesting considering how many resources we see being devoted to new greener pastures and alternative target groups.
Growth in customer retention results in even more growth on the top and bottom lines
While healthy growth often comes from the core business, it’s also worth noting the significant growth potential of customer retention. When it comes to customer retention, 5% growth results in 25–95% growth in profit. These figures came out more than 20 years ago – and today they are more relevant than ever considering how buying patterns and business models have changed in that time.
An excellent example of how important retention is in some industries is how streaming services struggle to keep customer churn in check. Expensive, exclusive content on the platform, subscription sharing, lifetime discounts, and the option to pause subscriptions are just some of the initiatives we’re seeing – especially in the highly competitive US market. Here, churn isn’t just visible on the bottom line – it directly impacts share prices.
Plug the holes before filling the bucket
If you can’t retain existing customers, then there’s no point in making huge investments to bring in new customers. This may seem obvious, but it bears repeating, because we see time and again companies attempting to compensate for customer churn with campaign offers aimed at new customers – without investigating why the old customers have left.
If you’re struggling with customer desertion, you need to take fast action and find out why. Talk to your customers, analyze the customer journey, and read those online reviews to learn all you can about the root cause. Often, it’s simply a matter of making some minor adjustments to your invoicing procedures or level of service, which is the least you can do in your efforts to keep customers in the fold.
Finally, we just want to say that even though focusing on existing customers should be priority #1, it’s important not to forget your potential customers. Or your brand-new customers, for that matter. After all, they have different needs than customers who have been with you for years. So it’s a good idea to find out what those needs are so they’ll want to stay with you.
We’re ready to help you with customer retention – from strategy to research and specific initiatives.
Contact us for a no-strings chat. And don’t worry, we’ll let you know before we get to the point where the meter starts running.