Businesses spend a lot of time, money, and effort attracting new customers. But if you want more value from your marketing budget, you need to find ways to hold on to the customers that are a good fit for your business. This is where customer retention comes in.
What Is Customer Retention?
Customer retention refers to a business’ ability to retain its customers and prevent them from switching to a competitor. It’s a measure of how well a brand meets its customers’ expectations and determines how successful a business will be in the long haul.
Why Focus on Retention?
“Existing customers are 50% more likely to try new products and spend 31% more, when compared to new customers.” - Neil Patel
Depending on which industry you are in, acquiring a new customer can be anywhere from five to 25 times more expensive than retaining an existing one. However, if you’re able to improve your customer retention rates by just 5 percent, you could see your profits increase by at least 25 percent. Some businesses have reported an incredible 95 percent increase in their profits through effective customer retention.
If you’ve never run a customer retention campaign before, these figures may sound outlandish, but once you factor in the Pareto Principle, it all starts to make sense.
Named after Italian economist Vilfredo Pareto, the Pareto Principle is a time-tested adage that says roughly 80 percent of a given result is a direct outcome of the 20 percent of the effort that went into it. For businesses, it means that 80 percent of the revenue comes from just 20 percent of the clientele. The Pareto Principle is also known as the “80/20 Rule.” Many top retailers have built their customer reward programs based on this maxim.
But wait, there’s more.
The value of retention becomes even more important when you factor in the consideration that the probability of selling to an existing customer is 60 to 70 percent, compared to just 5 to 20 percent for a new prospect.
Research has even shown that repeat customers are 50% more likely to try out a new product or service you’re bringing to the market. And in the process, they would be willing to spend 31% more money on your business.
It’s easy to see why a business would want to dedicate its resources to engaging with their customers and making them feel valued. So, why is it that marketers tend to focus more on customer acquisition, instead of securing repeat business from those who are providing the bulk of the business income?
Challenges with Customer Retention
One reason why some businesses concentrate primarily on lead generation is that measuring the effectiveness of a customer retention program is a lot more nuanced than simply dividing the marketing expense by the number of customers acquired.
The challenge becomes even more apparent in the case of brick-and-mortar stores in which the business owner doesn’t know where the customer is coming from in the first place, and when and why they would return. But this is a problem that can easily be solved with the help of technology that connects a customer’s online behavior with the offline world. Our next blog expands more upon this solution and other strategies that can help a retail business to improve customer retention.
For now, suffice to know that there’s no dearth of data in the current retail environment. Any successful marketer would tell you that retaining customers is more about gaining actionable insights from the data rather than just monitoring daily transactions.
Today, people feel so inundated with advertisements and messages across devices and platforms that they crave personalized and relevant content. At the same time, as the pandemic wanes, their longing to return to physical stores is at an all-time high.
All this makes “now” the perfect time to build meaningful connections and convert customers into brand loyalists. Want to learn more about improving retention? Hop over to our next blog.
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