Which is more valuable to your business: Customer retention or customer acquisition?
If you have a small business mentor and haven’t yet asked this question, please do so. Why?
Many small enterprises seek new customers with zeal and this is necessary to sustain all businesses but the true value of customer retention can be forgotten along the way and this is a huge error.
Maintaining existing customers loyalty is financially more rewarding than acquiring new customers. The concerns about how much customer retention costs are largely unfounded and whilst there is no definitive answer about outlay, Bain & Co. cite customer acquisition as 6 to 7 times costlier than retention.
Customer retention is a matter of comprehending the cost versus value.
- Cost is what you put in.
- Value is what you get in return.
Small business coaches, including Peter Smith who works with the Thames Valley Business Advisors and has vast experience in this area, urge business leaders to realise the value that a customer retention strategy delivers and the costs which winning new customers strips away from the enterprise.
Using the Bain & Co. figures, £100 spent to retain one customer translates as £600-£700 in new customer acquisition. You have no assurance that the new customer will return so there must be attention paid to customer retention to realise the value.
Clients tend to wander away when they feel unappreciated, this must be addressed.
Existing customers are naturally willing to repeat a positive experience, it can turn in to a habit.
To increase your business you must recognise that customer retention holds the key.
The actual value that each kind of customer brings is substantially different. If you are currently focusing all your energies on the less beneficial area, it is time to have a rethink and speak to a small business mentor about how to maximise your client retention.
Industry expert statistics
Using figures from Khalid Saleh, CEO, author and speaker, these statistics should show you, without any room for doubt, that client retention is of more value than client acquisition. New business is important, retention more so.
Saleh states that:
- The probability of selling to an existing customer is 60-70%.
- The probability of selling to a new customer is 5-20%.
- Improving the client retention rates by 5% means a 25-95% increase in profit.
- Existing customers are 50% more likely to try new products than new ones.
- Existing customers spend 31% more than new ones.
It could take 6-12 months to break even with a new customer, especially if they don’t use you frequently. During this time, the customers you’ve retained are spending and at 31% more than their new counterparts.
You don’t have to work alone on your client retention strategy, there is help at hand. As mentioned, small business mentors like Peter Smith have the experience, accrued knowledge and issue resolution skills that prove highly beneficial to the businesses they work with.
Contact a mentor now to gain greater insight.