Customer retention is essential to the growth of your business. When growing a business, it’s easy to get so focused on acquiring new business that you forget about keeping your current customers happy until it starts to effect the bottom line. At that point you’ve already lost ground and it requires more effort to recover. It’s better to focus on both acquisition of new customers and retaining existing customers. Otherwise, customers who have already purchased your product may start feeling like you no longer care about them, and certainly this is probably not true – or it shouldn’t be. Balancing customer acquisition and retention helps your business grow more rapidly and requires less energy.
What is customer retention?
Customer retention is a collection of activities and approaches used to encourage customers to continue doing business with your company as opposed to defecting to a competitor. It’s a method of continually earning your customers’ loyalty. These activities start from the very first interaction prospective customers have with your organisation and continue throughout the entire relationship. When customers leave your company for another, it’s called churn. Successful customer retention efforts prevent churn and encourage repeat business from existing customers.
Why is customer retention important for your business?
Customer retention is critical to the long-term health of your business. Existing customers already know your company and have previously bought from you. This makes them the easiest and most predictable source of new revenue. They don’t buy from you once, they continue to come back to buy repeatedly. They do this because you’ve already proven yourself to them by offering a quality product and value combined with excellent service. As a result, they trust you to continue to do so. This is why customer retention increases each customer’s lifetime value to your business.
Continually losing existing customers while winning new business could cause your business to stop growing or, worse yet, start to shrink. Retaining existing customers helps you steadily increase your customer count along with revenue and profitability.
The value of customer retention vs. customer acquisition
Retaining existing customers can save your company a lot of money. It’s been found that it costs 6 or 7 times more to gain a new customer than it does to keep your present customers. Plus, research by the same organisation revealed that a 5% increase in customer retention can result in a 25 - 95% increase in company profitability! This is true because existing customers, who have a positive experience with your organisation already know, like and trust your business. This also means that you are familiar with their needs and preferences, making it easier to close the next sale with them. It requires less marketing effort on your part with existing customers, helping to contain marketing expenses and further developing your company’s relationship with them. Plus, they are an excellent source of referrals or warm leads to help further grow your business. These leads are easier to convert to customers because your existing happy customers suggested your product or service to them.
Existing customers provides you with an excellent resource for insights for continuous improvement, allowing your organisation a competitive advantage in the marketplace. And, selling to existing customers help protect profit margins because your current customers will be less focused on price, having already experienced your superior product and service.
Although sales and marketing to attract new customers to your business are very important, without tracking your customer retention rate and building a consistent strategy to build a loyal customer base, your business could be in jeopardy. Customer retention is what will allow your business to grow consistently over time, through economic downturns and when challenged by tough competitors. So, never forget the value of your existing customers. Taking the time to focus on them is what will set you apart from the rest. That’s what will keep your customers coming back for more.