11 Jan Focus On Retention
By Ty Benefiel, President | MeterGenius
Are you focused enough on retention?
If you’re serious about growing your business, then you must be serious about keeping the customers you already have. Too many companies spend money trying to wrangle in new people while watching valuable existing customers walk out the door. Instead of focusing only on acquiring new customers, an effort to increase your retention rate will be the quickest, easiest and cheapest way to build a more valuable and more sustainable customer base.
Grow faster by focusing more on retention
On average, it costs four times more to acquire a new customer than to keep an existing customer. Essentially, every dollar you spend to acquire a new customer could have been used more effectively to retain the customers you already have.
Some quick math can help explain. Let’s start with some basic assumptions we’ve seen with our clients:
- Cost to acquire a new customer – $120
- Cost to retain an existing customer – $30
- Customer retention rate – 60%
- Beginning of year customer count – 100,000
- Marketing budget – $6,000,000
Using these assumptions, if you spend 100% of your marketing budget on only acquiring new customers, you’ll add 50,000 customers but you’ll also lose 40,000 existing customers. That adds up to a net growth of just 10 percent despite an aggressive spending campaign. With that same budget, if you spend just 10 percent of your marketing dollars on customer retention, you would’ve kept 20,000 more customers while adding 45,000. That’s a growth rate of 25 percent!
Your customers will be more valuable
A focus on retention will not only provide a larger customer base, but it will also increase your Customer Lifetime Value, the measure of an average customer’s profitability over their entire time with your company.
By increasing retention rates by 30 percent, we’ve had clients increase their Customer Lifetime Value by nearly 60 percent.
Let’s add a new assumption to the example above – your current Customer Lifetime Value is $400. That means at the beginning of 2017, your customer base will be worth $40 million. If you shift 10% of your marketing dollars to focus on retention, then your Customer Lifetime Value could increase by 60% to $640. At the end of 2017, your customer base will be worth $80 million ($640 X 125,000 customers) – a 100% increase over the previous year. Compare that to the 10% improvement in the value of your customer base if you don’t improve your retention efforts.
Improve retention by focusing on your current customers
By focusing on retention, you’ll get into the mindset of caring about what matters most – your existing customers. Improving retention comes down to building a stronger relationship with your customer by providing a product and experience that they truly value. And what do customers value? Helpful customer service, a modern digital presence, ways to save money and rewards for being loyal customers. Spending money now to address these needs is the best way to ensure incredible growth in 2017.