Customer retention or customer acquisition? Which kind of customers should you focus your marketing budget on? A lot of marketers have conflicting ideas over which of these customers are most important and valuable to their business.
I will not say one is more important than the other, but I can say as much as after all, what’s the point of investing time, effort, and resources into customer acquisition, only to waste the potential of their relationship once you have them on board?
What is customer retention?
Customer retention is the collection of activities a business uses to increase the number of repeat customers and to increase the profitability of each existing customer.
Customer retention strategies enable you to both provide and extract more value from your existing customers. You want to ensure the customers you worked so hard to acquire, will stay with you, have a great customer experience, and continue to get value from your products.
Acquisition creates a foundation of customers while your retention strategy is how you build your customer relationships and maximize the revenue from each customer.
In this blog post, we will give you an overview of why customer retention deserves at least the same amount of focus as acquiring new ones.
Here is ANYDAY’s list with 4 reasons why customer retention is important for your business:
1. Customer retention is cheaper
Attracting new customers may be rewarding for your business, but it also often involves a lot of hard work and expenses. Costs of customer retention, on the other hand, are in general significantly lower. In a matter of fact, it costs five times more to attract a new customer, than to keep an existing one.
By targeting existing customers with an interest in your product and a willingness to buy it, you are giving yourself a much stronger chance of making a sale. Studies have shown that the probability of converting an existing customer is 60-70% where the likelihood of converting a consumer into a new customer is only 5 – 20%.
2. Existing customers are more likely to shop with you again
It is often much easier to sell to an existing customer than it is to sell to a new one. All barriers to purchase have already been overcome, and existing customers may just need a slight push to increase their wallets, and this will speed up your sales process.
In relative to new customers, there is a lot of factors, that the customers must go through before buying a product or a service on your online store. Who are you? What is your brand? What is the quality of your product or services and can they trust you? All these questions and concerns are something that existing customers already know about.
Existing customers already know you; they know your brand, they know your online store and most importantly, they know that you are a trustworthy company. You have already offered them a pleasant business experience previously which makes them more likely to make future purchases from you again.
Studies show that after one purchase, a customer has a 27% chance of returning to your store. That is not a horrible return rate, but if you can get the customers to come back and make a second and third purchase, they will have a 54% chance of making another purchase.
3. Existing customers spend more on each purchase
It is not only cheaper and easier to sell to an existing customer, they also have a higher average order value than new customers have. Actually, existing customers spend an average of 33% more on every order than other customers do.
Did you know that on average, the top 10% of existing customers spend 3 times more per order than the lower 90%, and the top 1% of existing customers spend 5 times more than the lower 99%.
4. Retention = Acquisition
A good relationship with your existing customers is really important, and can even result in further customer acquisition for your company. How? If the existing customers are having good experiences buying product or services on your online store, they will probably tell other people about their customer experience, which is also called word of mouth advertising.
Word of mouth advertising is not only free but possibly one of the most effective forms of advertising. Customers will always talk, and they will always listen to other customers. A report shows that 88% of people will trust online reviews written by other consumers and 74% of consumers identify word of mouth as a key influencer in their purchasing decisions.
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