For Better Growth, Focus On Customer Retention Than Acquisition in Marketing

Every business survives on sales. Sales comes from customers – new & old. Getting new customers for the business is called customer acquisition whereas retaining the old ones is called customer retention.

We can’t really run a successful business without adding more and more customers, this is particularly true for startups and growing businesses. Getting customers is the most important activity, period. Many startups set a goal and get to the work for getting new customers. They get too focused on getting new customers and devote all the resources for the same – this is where a BIG mistake happens. To keep getting new customers and not able to take care of the old ones will be like a leaky bucket where you keep pouring water from the top and it keeps emptying from the leakage at the bottom. Result – your net growth suffers.

Retaining customers means stopping the leakage at the bottom of the bucket so that the customers once acquired stay longer with you. If they stay longer they will buy more of your products and services, thus making more contribution to the revenue and profits of the company.

What is more important to you acquiring new customers or retaining the old ones? Well do we really have a choice here? I don’t think that we have a choice. Of course, we need to go for both. Consistently hunt for new customers at the same time work on retaining and milking more from the existing customers. But all organizations have limited resources and they must optimize the use of the human bandwidth as well as finance available to them. No company can afford spending unlimited funds on acquiring new customers or even on retaining the old ones blindly. But since both are important – appropriate allocation of resources to both is the right thing to do.

In case you need to make a trade-off between the two. Let me give you a perspective on a brief comparison in both:

  >> Getting a new customer costs five to seven times more than keeping an existing one. This single statistic alone is good enough to convince you that one must be focusing more on retention.  

 >> Depending on industry, businesses can have 25 to 125% increased profits if they just improve retention by 5%.

 >> When you have some new product, probability of selling that to an old customer is 60-70% whereas it’s just 5-20% if you are trying to sell to a new prospect.

Huh! These are some astounding figures. Yet it is shocking to see that so many companies do not have a program in place and are leaving lot of money on the table.

Now, when you know that retaining the customers can really be that transform your company’s future – it’s imperative to discuss few tips and tactics to do that.

Why do the customers leave?

Well, in my opinion there can be just 4 reasons behind the customers leaving you:

  >>They feel that the service is poor. As per a research 68% of the customers abandon companies because of poor services. Let me warn you of you are into product industry…. Service does matter there as well. At times service may also mean the way you treat your customer. Let me share another number here – a satisfied customer approaches and tells to around 9 people about your awesome service whereas the unhappy customers tells about your poor service to more than 20 customers. Today when it’s not enough to give good service/product – we must focus on excellent customer experience. In case you have a dream to do really well in the market with due course of time, customer experience must take the center stage. Every moment of truth must be managed well. No compromises here.

  >>They feel your product or service is overpriced as compared to the competition. India is highly price sensitive market, make sure that the price you charge is appropriate. You don’t really need to or can’t make losses but make reasonable margins. Instead of making lot of money from few customers believe in making little money from lots of customers. There is no hard and fast rule here for pricing but match the product + service with the amount of money you charge from the customer. If you are charging higher than the market make sure you provide frills like free delivery, fast delivery, good packaging, better quality product and assurance like free replacement or repair etc. In all, the perceived value of the product must be higher or least equal to the price paid. 

  >>They move away, die or no longer need your products. E.g. when the kids grow up the parents may stop buying diapers. We can’t really do much here, if the customers churn because of these reasons, they won’t harm your business by spreading negative word of mouth.

As I said in the beginning, you must focus on customer acquisition and retention both. The business needs new customers as well as it needs the customers to stay for long so that the Customer Lifetime Value (CLV) can be maximized. Yet, the action here is – if you don’t have a proper formulated customer retention strategy which:

  >>Rewards the loyal customers,

  >>Converts their already good experience to further awesome one so that they become your ambassadors

  >>Inspires them to spread positive word-of-mouth, which will make your new customer acquisition a cake-walk.

It is very clear that customer retention should be a top priority of startups and growing businesses yet it's shocking to know that as per Harvard Business Review 91% of the startups don't have any customer retention strategy on place. It’s the high time that you think and act on this. Let the speed of new customer acquisition slow down if it does, but begin on the customer retention strategy as soon as you can, preferably today and now.

Do you have any more views/ideas on Customer Acquisition or Retention Costs and benefits or some really innovative ways to go for these… feel free to put the same in the comments here.