Customer Retention

Chapter 29: Customer Retention vs. Acquisition

Even in the Bad Old Days of marketing, smart businesses understand the difference between customer acquisition and customer retention. Many used the analogy of the front and back door.

Imagine a party where your success hinges on how many people are inside at any given time. You put a couple of attractive, persuasive people at the front door to call passersby into your party. If they’re successful, the house begins to fill up.

Most businesses put a lot of effort and money into their marketing — the attractive, persuasive people in charge of their business’s “front door.” And they’re right to do it. Without new people coming into the party, your business can’t grow.

But your house has a back door, too, and people keep wandering out. Since you can’t legally stop people from leaving, your job is to keep the party as fun and exciting as possible so you people don’t want to leave.

In your business, this is all about the experience, service and engagement you use to consistently delight your clients. In 21st-century business, the analogy of a party applies more than ever because social media turns digital life into a constant cocktail party attended by all of your clients, potential clients, and strangers who might one day become a client.

And its importance doesn’t stop there.

Just like it’s easier to convince somebody to stay at a party than to stop what they’re doing and come to one, it’s five times as costly to attract a new customer as to sell to an existing client. Moreover, existing clients spend about 33% more than new customers. Let’s break down what that means:

If a company spends $1,000 to make $3,000 from a new client, a $200 investment can net a $4,000 sale from an existing customer. That’s an ROI of 2000% vs an ROI of 200%.

That’s not to say new customers aren’t important. People leave even exciting and popular parties. But this is to say that most businesses don’t put enough energy and budget into retaining their existing companies.

Not exactly breaking news – this has been true, and we’ve known it was a mistake since at least the 1980s. But the context and possibilities of 21st-century digital marketing make this news more urgent and acting on it more powerful, than ever before.

Your Unfair Advantage

Let’s look at some of the ways seeing to your back door can give you a significant and almost immediate advantage over competitors who take the common, front-door-centric approach:

Better ROI

That ROI picture we painted above is only half of the equation. It shows you how some of your marketing dollars can outperform other marketing dollars by 10x. Now, only 18 percent of companies focus on retention….they’re spending $5 for every $1 you spend, and you’re making 33% more profit on your dollar. That’s a differential between your dollar and theirs of XX.

Strong customer retention tactics put more of your resources toward that higher payoff. We’re not saying you should abandon your customer acquisition, but giving both doors even equal importance puts you ahead of 60 percent of the competition.

Higher Lifetime Client Value

Lifetime Client Value (LCV) is a metric that rates the amount of money a given client (or the average client) spends at your business from the first sale to the last purchase. Since the bulk of the cost for any client comes before the first sale, high lifetime client values are a sign of a healthy, profitable business. Although 76 percent of companies give lip service to LCV as important, only 42 percent are even able to measure that statistic accurately.

Customer retention tactics keep LCVs high because they keep you in the client’s front-of-mind awareness by reminding them that they are in yours. This results in existing customers being 50% more likely to try new products and spending 31% more money when they do.

Delighted Customers Become Brand Advocates

We talked earlier about how the modern, digital consumer is engaged and opinionated. We’ve all seen the horror stories about what happens when a single irritated customer decides to tell the world on her blog, all three of her social media channels, and a half-dozen customer review sites. Delighting customers goes beyond that into making a client so rip-roaring happy about his relationship with you that he uses that blog, those social media channels, and those review sites to advocate for your brand.

Focusing on customer retention gives you more opportunities to delight customers by creating more contacts. Automating many of those contacts just like you do customer acquisition makes delighting those customers simpler and more cost effective.

And the Winner Is…

Customer retention tools.

Not all marketing tools are built for customer retention. Many channels are used overwhelmingly for customer acquisition because that’s what they’re best at. Some examples include:

• Paid search
• Online display advertising
• SEO tactics
• Web retargeting
• Mobile websites

You’ll note that most of these channels are built to help strangers discover your company. Existing clients don’t need that.

Platforms that keep you in touch with existing contacts get a lot more use in the customer retention sphere. Platforms like…

• Social media marketing/management
• Email marketing/segmentation
• Content distribution
• Surveys and feedback
• Email drip systems

A solid digital marketing plan incorporating digital customer retention tactics puts you several steps ahead of any competition.