5 Reasons Why Customer Retention Is Key To Your Business
Customer retention–the act of keeping current customers that you have already spent money acquiring–is extremely important for any business. Attracting a new customer costs, on average, five times as much as keeping an existing one, and depending on the industry you are in, it can cost up to 30 times as much to acquire a new customer vs. retaining an existing customer! Increasing customer retention rates by just 5% increases profits by 25% to 95%. Many companies don’t realize how important retention is, focusing more on acquisition and sometimes leaving their current–and loyal–customers unsatisfied.
Customer retention helps increase the profitability of your business in a number of ways that you might not realize. Here are five reasons why customer retention is key to your business’ success.
1. Save Money On Marketing
As we mentioned above, it costs significantly more to acquire a new customer than it does to retain an existing one. So save your money and reduce your marketing expenses by keeping your old customers who are already familiar with your products and services. Familiarization with your products and services also means your business needs to spend less time on customer support.
2. Repeat Purchases From Repeat Customers Means Repeat Profit
Loyal customers will use your business regularly for purchases and tend to spend more money. Existing customers are 3 to 10x more likely to buy than a cold lead (MarTech). They are 50% more likely to buy new products and spend 33% more than new customers. A valued customer trusts your business and believes that you offer a superior service compared to competitors. This customer believes that your company listens to their needs and requests — so it is important that you do so! Pay attention to which brands, products and purchases this customer prefers, as they are more likely to make additional purchases at your business.
3. Free Word-Of-Mouth Advertising
We’ve said it before, and we’ll say it again: word-of-mouth is the most cost-effective advertising you can have and only comes from your loyal, happy customers. Repeat customers are more likely to tell their friends and family about your business and its products, and customers respect the opinion of those close to them. Customers are happy to tell people about excellent service they received or a product that they enjoyed.
Just look at some of the numbers:
49% of U.S. consumers say friends and family are their top sources of brand awareness.
People who are referred by a friend are 4x more likely to buy from a business, and one offline word of mouth impression drives sales at least 5x more than a paid impression.
92% of people trust recommendations from family and friends more than all other forms of marketing.
A successfully retained customer is much more likely to refer other customers. These referees cost less to acquire and have a higher lifetime value than customers gained from other ways.
4. Retained Customers Will Provide Valuable Feedback
Customers that you retain provide valuable feedback, and it’s important that you listen. 97% of consumers said they are somewhat likely to become more loyal to a company that implements their feedback, while 55% of consumers said they are not likely to continue being a customer of a company that ignores their feedback (Apptentive).
Customers who make frequent purchases from your business will know which areas of your business could be improved. How can you improve your business if you are only dealing with new customers? Ask your repeat customers how your business can serve them better. This will lead to new opportunities that you may have overlooked, and lead to increased retention rates and sales.
5. Previous Customers Will Pay Premium Prices
Long-time, loyal customers are far less price-conscious than new customers because they value your company already and, thus, are willing to pay the price for your services. Many customers associate higher prices with quality service and retained customers trust that your company can deliver this quality over competitors.