Retaining Clients Vs Signing New Ones
Whether you’re a start-up or a multi-million dollar entity, every organization depends on customers. Businesses’ bottom lines are only met when there are buyers for their products and services. Without them, even the most innovative products will collect dust. To build an expansive and loyal customer base, what’s better: customer retention or customer acquisition?
Short answer: neither! Customer retention and acquisition are both equally important in making a business successful. Ideally, all businesses will equally focus on retention and acquisition. But, the reality is that this is just not possible in most cases. The size of the company, its capacity for capital investment and its current goals are among the many determining factors in choosing which one to prioritize.
Before creating a strategy and investing your hard-earned money in customer acquisition or retention, it is important to understand the requirements of your business, along with its current and long-term goals. This guide will present the facts for you to make informed financial decisions for your unique business.
Growth or Sustainability?
Customer retention or customer acquisition, what should be your focus? While acquisition concentrates on driving the growth of the company by gaining new clientele, retention zeros in on sustainability by prioritizing an already existing customer base. Yes, both play a pivotal role in building a successful business—but you need to decide which is more relevant to your current situation.
Before you put your resources to use, it is crucial to understand some fundamentals.
Customer Retention
Customer retention highlights a company’s ability to maintain a long-term relationship with a customer to generate perpetual profits. It shows the reliability of a company. Companies with high customer retention rates are hailed for their excellent customer service and the value of the product. These are your household names, your go-to brands in times of need. Not to mention, recurring customers often aid in customer acquisition through word-of-mouth advertising. People are much more inclined to trust an unfamiliar brand if someone they know has had a positive experience with it!
From a revenue standpoint, customer retention focuses on growing customer lifetime value (CLV). CLV predicts the amount of money that one customer will spend on the products and services throughout their relationship with the company. Calculating CLV enables you to analyze the monetary value of each customer. To promote company sustainability, you should focus on CLV. You can increase the lifecycle of the relationship with your customer by increasing demand, offering incentives and more.
Customer Acquisition
If the current goal of your company is growth, then customer acquisition is the fastest way to do it. It enables you to reach short-term revenue goals quickly. The process of onboarding new customers requires the creation of sales and marketing funnels, tailored to your business model. Customer acquisition professionals use these funnels to attract new customers or upsell to existing customers to generate more revenue.
Through various conversion funnels, you can engage with prospective clients and spread awareness about your product and service. While the goal here is to attract new buyers, with the right service, you can also convert them into returning customers. This is a perfect example of investing in customer acquisition while also reaping the benefits of retention. Difficult, yes, but also incredibly rewarding.
Now, you need to evaluate what your company needs. Are you leaning towards capitalizing on already existing clientele, or are you looking for growth? In most cases, new businesses and start-ups will focus more on customer acquisition while established businesses will create strategies for customer retention.
Value for Money
Of course, every business aims for sustainability and growth. For this, they focus on acquiring new customers and retaining the existing ones at the same time. As both of these require capital investment, one will inevitably take priority over the other.
You’ve likely heard the saying “It costs more to create a new customer than to keep an old one”—they weren’t lying! According to Invesp, customer acquisition campaigns can be approximately five times more costly than customer retention campaigns. To onboard a new customer, you need to educate them about your products and services. This requires the creation of more content because you are starting from scratch. You need to build new funnels, create more comprehensive ad campaigns and ensure a higher reach to attract new people.
Even though it requires less effort and money to keep an existing customer, Invesp states that 44% of the companies are more focused on acquisition, compared to 18% that favor retention. Why? Because customer acquisition is essential for the expansion of an organization.
Sales and marketing funnels created for acquiring new customers are more financially demanding. Company executives use a number of tools to execute these funnels. At times, many offline activities and events are also organized to spread awareness about the brand. All of these undertakings are important to ensure that your funnels also fetch good quality leads that can be converted easily.
You might be wondering if all funnels be equally expensive? The answer to that is a resounding no. Depending on which stage of the funnel you are focusing on (awareness, interest, consideration, intent, evaluation or purchase), the cost will vary. Generally, the initial stages are more costly as they require the creation of various marketing collaterals, like content and graphics. The lower a lead moves down the funnel, the less money you need to nurture it.
Given the cost involved, it is always advised to be precise while calculating the cost of acquisition and/or retention of customers. Once you have executed the funnels, calculate the ROI and make adjustments as needed before the second deployment.
Return on Investment
A higher return on investment is the ultimate goal of any business transaction. The same applies to customer retention and customer acquisition. As stated, onboarding a new customer requires more financial input, and retaining existing customers yields higher returns, as you don’t need to start from scratch.
With time, the value of your existing customers increases. They are more likely to repurchase and try your new products and services. This is because they trust your company. Trust and loyalty are imperative if you are expecting higher returns on the money you spend on customer retention. This is why many known brands, like Starbucks and Sephora, have loyalty programs where they offer incentives to their returning customers.
Acquiring new customers is crucial for the expansion of the business but for long-term growth, you should focus on customer retention. Here’s why—for already established businesses, customer retention is more important:
Increased revenue
Customer acquisition brings short-term revenue gains while retention of existing clients generates long-term profits. According to the research done by Wrike, existing customers are 3.5 times more likely to repurchase from a company and are also more likely to place bulk orders. It is important to understand that to run a successful business, you need to understand its current revenue needs. If you are looking for quick gains, focus on customer acquisition. For stable growth, invest in retaining your existing clients. It’s a marathon, not a sprint!
Reduced cost of doing business
As the cost of retaining existing customers is less, you get to increase your net profits. By spending only 2% more on marketing campaigns targeted at customer retention, you can increase your saving on campaigns by 10%. Continue with this process and you will experience great long-term results.
Retain more Millennials
By offering good customer service and aligning brand ideology with the right socio-political movements, you can retain more Millennial customers. This generation is one of the best customers to have because once they are satisfied, 80% of them turn into recurring clients and generate higher revenue for the companies. This is one market that you can easily capture and retain through authentic, well-timed efforts.
Lower sales/marketing funnel costs
Happy customers play an important role in your sales and marketing funnels. You do not have to spend money on convincing them to make multiple purchases, and their referrals are strong enough to bring in more customers as well. This significantly reduces the cost of funnels, as you do not have to spend too much on advertisement campaigns.
Automate email triggers
Learn more about your customers, their buying habits and their relationship with your company. Customers are more likely to open an email that is based on the life cycle of a purchase they’ve made. For example, if they make a monthly or annual purchase, send them a reminder email or an offer around that time. Since they are already about to repeat their purchase, the chances of your email getting opened are higher. You can also send emails to a customer if they have been inactive for a while. These trigger-based emails have a higher opening rate.
Once you have onboarded a customer and they have paid for your products or services, the next step is to ensure that they return. Whether it happens or not depends just as much on the customer service as it does on the value they associate with your goods. Therefore, to retain your customers, you need to focus on the services that you are providing to them.
Here are a few tips you can use to create better customer retention strategies:
- Productive problem-solving begins when you listen to your customers. Train your customer support to be empathetic towards your customers and to listen to them with an open mind. These conversations will give you insights into what your customers really want, so you can adequately cater to them.
- Keep track of your customers’ activity to identify early signs of them leaving. Most customers do not randomly leave an organization out of nowhere. You will notice a change in their buying patterns, inquiry history, interaction with the website/app and more. If you see drastic changes, you can reach out to them well before they decide to leave and work to reel them back in.
- Create special deals for your customers to encourage them to keep returning to you. You can look into the data offered by CRM software and create personalized offers. For example, if a customer keeps purchasing an item every month, give them a special discount for a monthly subscription. This will make your customer feel appreciated and want to be more loyal to you.
- Create reward and loyalty programs for your regular and VIP customers. It serves a dual purpose: they feel like they belong to an exclusive group and they keep purchasing more, as these purchases will fetch them more incentives.
- Build a better relationship with customers by personalizing your follow-ups. Instead of using generic ‘hi,’ ‘hello’ and ‘dear,’ use the name of the customer. You can begin an email with the name or address them directly in the subject lines. This reassures the customer that they are more than just a number to you.
Seal the Right Deals with the Right Tools
To reiterate, customer retention and customer acquisition are equally important for the growth and expansion of any company. It doesn’t matter if you’re a bakery operating out of your family kitchen or a tech giant. Granted, most big companies with big budgets focus on both. New businesses and start-ups should focus on acquiring more customers as the main goal is business expansion. Companies that already have a large following should focus on retaining their patrons to enjoy recurring profits.
Before you start strategizing and creating campaigns for customer retention or customer acquisition, you must begin by focusing on the marketing collaterals. From eBooks, pillar pages, blog posts, infographics, brand stories and case studies—there are many marketing collateral you can leverage to onboard new customers and retain existing ones. With the right content, you can level up these collateral and close more deals.
With the help of top-tier presentation software, you can make your marketing collateral more attractive. Software like Ingage helps bring your campaigns to life, make them more engaging and lead to a higher conversion rate.
Book a free demo and start your journey of closing more deals, today!