Most marketing strategies are geared toward customer acquisition. That being, attracting and converting people into new customers. This is for good reason. A business relies on the steady influx of new customers to sustain growth and profitability. Attracting new customers remains a fundamental premise of maintaining a successful business model. This is why 44% of companies spend most of their marketing budgets on generating new customers.
In contrast, the value of retaining and profiting off your existing customers is frequently overlooked. What if you could grow your revenue by up to 80% just by redirecting 5% of your customer acquisition budget to retention methods.
Customer retention methods refer to strategies to inspire loyalty from your existing customer base. It also means being accountable for customer turnover rates. Did you know that 20-60% of customers will leave your business within the first 100 days of acquiring them? The question is why? And what measures can you put in place to decrease your turnover rate and increase your retention stats?
A successful retention strategy will actually feed into your customer acquisition strategy, as your happy customers turn into walking, talking referrals. 70%-80% of all new business still comes from referrals. That means that customer retention is the best way to secure recurring revenue AND supercharge your acquisition strategy.
All businesses will experience some sort of customer turnover or churn in their lifespans.
It’s the inevitable part of business relations that we don’t like to think about. Customer turnover, lost opportunities and fractured partnerships. While this is a completely normal occurrence in any business, having a high customer turnover rate can not only make your acquisition efforts fruitless but can also point to problems in your product, service or customer service experience.
Here at One Stop Media, we have been thinking about the nature of customer turnover and retention and in it, we have seen some immeasurable opportunities for growth.
We believe your existing customer base is your biggest asset in minimising acquisition costs and reaffirming your own brand authority.
Customer churn is often the impetus for customer acquisition, so what would happen if instead of looking outward for new customers you focused in on retaining your existing ones?
Customer retention remains the missing ingredient when it comes to increasing sales and revenue. It’s helpful to think of customer retention as a fundamental aspect of customer acquisition. In fact, we’d go as far as to say that customer retention is the new and improved way of attracting new customers and increasing revenue. This happens through a multi-pronged approach where your existing customers generate referrals and new customers whilst still investing in your business.
Customer retention measures also function as best business practice that will enrich your customer service, engagement and other marketing efforts. Retention often gets disregarded in the face of more tangible methods (like customer acquisition). Turnover rates and retention can be difficult metrics to measure and discovering the reason behind it can be even harder. However, the answers will pave the way for your business’s growth as they will uncover improvement opportunities.
The most common reasons for customer churn are:
- A poor customer experience. Customer service is your biggest weapon against customer turnover. Not only will a great customer service experience make the customer much more likely to continue to invest in your brand, but a staggering 86% of people are actually willing to pay more for a better customer service experience.
- Lack of support. Problems happen. This is an unavoidable part of business. The merit of your business lies in how you respond to these problems when they occur and how/when you resolve them. If there is a functionality problem with the product or service that you sell or the customer is unsatisfied with their purchase, it is your business’s responsibility to resolve these issues in a timely manner.
- Poor User Experience. If your customer turnover rates can be attributed to poor user experience, it may call for a product recall/review or investigation. This feedback can be obtained from reviews and customer interactions. If there is a reoccurring theme to the complaints, it’s integral that you look into it. If your response to these issues is inadequate it’s extremely unlikely that customer will ever purchase from your business again.
If you’re still not sold on needing a customer retention approach, then it may be useful to do some LTV calculations. The Lifetime Value (LTV) of a customer refers to the average amount of money a customer will invest in your business during the entire duration of your relationship. LTV, however, can tell you a lot more than just profit, it’s actually a great way to measure resonance, engagement and future growth.
LTV can be measured in a few ways. Historic and predictive are the most common ways of estimating LTV. To do this, you’ll need to know the average profit margins of your purchases, the amount you spend to acquire a customer and the average duration of your relationship with a customer.
Historic measuring is probably the easiest way to determine LTV because the data is readily available to you. LTV is equated to the value of each transition multiplied by your average gross margin.
Pre-emptively measuring the LTV of future or prospective customers can be a little more difficult. You’ll need a few points of data including:
- Average amount per transaction
- Average monthly transactions
- Average gross margin
- The average number of months your customers remain loyal
Predictive LTV can be achieved by multiplying these numbers together.
To overcome lost revenue opportunities, it’s important to come up with ways to turn your existing customers into brand promoters and ambassadors. Chances are because these people have already invested in your business, they’ll be much more receptive to your marketing measures.
Selling to a new customer has a 55-20% success rate. The odds of selling to an existing customer, however, rise to about 60-70%. This makes customer retention a much more cost-effective strategy.
Where marketers and businesses alike are missing the mark, is in leaving customer retention out of the equation. Instead of investing heavily in lead generation methods, oftentimes it can be just as beneficial to allow your existing customer base to fuel and inspire new customers.
The numbers show us that it can cost up to 25% more to acquire a new customer than to retain an existing one. It’s important to remember that 93% of happy customers are likely to invest in your business again.
Word of mouth affirmation has had a resurgence with the proliferation of online reviews. Positive reviews happen when existing customers inadvertently turn into brand promoters.
So what is the art to keeping customers engaged in your business and turning them into brand promoters?
- Customer service. A flawless customer experience is fundamental to encouraging repeat purchases. This starts from the moment a customer shows interest in your business and extends to long after the purchase has been made. Exceptional customer service is when customers will begin to refer your business to your friends and family. Even if a customer encounters problems down the track, they are much more likely to resolve these issues alongside you. If a person’s customer experience hasn’t been that great, then they are more inclined to leave when problems arise.
- Encourage customer stories. Create case studies, interviews, reviews and user-generated content to authenticate your positive referrals and positive customer experiences. Highlighting these stories on your website and social media platforms will boost your customer acquisition strategy and will also cement your existing customers as valuable lifetime investors. It’s also good practice to promote and show your customers success stories, before & afters, statistics or progress shots, whatever is applicable to your product, service or industry. This gives your existing customers a narrative to attach to your business whilst also functioning as verification for prospective customers.
- Engage regularly with your audience through social channels and website blogs. This is where a content marketing strategy becomes instrumental. Interacting with your audience through relevant, industry-specific content will strengthen your relationship with your existing customer base. Regular social media posts, blogs and articles will assign authority to your business, making your audience much more likely to trust and invest in your business.
- Discounts, Special Offers & Loyalty Programs. It’s important to reward loyalty. By measuring the LTV of your existing customers, you should be able to determine a promotion or discount that is economically viable for your business and that demonstrates that you value your returning customers. Loyalty programs are incredibly cost-effective and they They can also be harnessed to obtain more feedback about your product or service (eg. Fill out this survey to receive 10% off your next purchase) or as a referral-based reward (eg. Refer a friend and receive a $20 voucher).
Returning customers add value to your business that cannot be replaced by new customers. Positive customer relationships are the basis of successful businesses. Beginning to invest in customer loyalty is the start of establishing returning customer relationships that add infinite value to your business. Here at One Stop Media, we can help you to kick-start a customer retention strategy to turn your existing customers into returning ones that inspire new ones!