The value of customer retention

Editor’s note: Nicole Holt is the head of research at Beehive Research. This is an edited article that originally appeared under the title “We (still) need to talk about customer retention.”

Neglecting existing customers in pursuit of new ones is a common mistake, which is why it’s an issue that lies at the heart of most customer retention conversations. It’s been debated for years and yet it still happens in many organizations across many sectors. 

Why do we need to talk about the importance of customer retention?

A large part of the reason is the focus on customer acquisition as a core strategy for business growth. There is huge pressure, particularly from leadership teams, investors and market analysts, to add customer numbers to the bottom line to demonstrate a thriving, forward-thinking business.  

Of course, growing your customer base is critical to overall business growth but it is not the only approach, and it can be a hugely detrimental and short-term strategy if it’s not measured and balanced. If you’re spending most of your time courting new customers, it’s likely that few resources are being directed towards your existing ones – those who are already interacting with your business, using your products and services and spending their money with you. 

Today, having a well-defined, laser-focused customer retention strategy is more important than ever for successful, sustainable business growth. Understanding your customers’ needs and wants and delivering exceptional experiences that answer these is the only way to maximize the lifetime value of existing customers and should be a central pillar of your business strategy. 

A strong customer retention strategy is good for your bottom line in many more ways than simple customer numbers. That’s because: 

Repeat customers are more profitable than new ones

Compared to new customers, repeat customers tend to spend more and are more likely to try your new products. According to Emarsys, studies show that loyal customers spend 67% more on products and services than new customers. Businesses with long-term growth goals should therefore work towards building a customer base with trust and loyalty towards their brand to see their profits increase over time.  

Marketing costs are controlled

It’s well-documented that it can cost up to five times more to acquire a new customer than it does to retain an existing one. Your existing customers already know about your products and services so why not gear efforts towards retaining them, rather than focusing solely on marketing to potential new customers? Word-of-mouth recommendations by loyal customers can be more lucrative and credible than any marketing. In fact, some studies show that word of mouth marketing can bring in five times more sales than paid media. 

Customer retention requires less resources than customer acquisition 

It takes much more time, effort and resources to convert a lead into a customer. In addition to marketing, you’re also reliant on sales teams reaching out and understanding requirements (a process that can take many weeks or months). If you’re executing a well-designed customer acquisition strategy, you’ll also be investing in customer onboarding and customer success – all critical processes, but ones that take time to deliver value.  

Retention leads to new customers

Attracting new customers requires continuously honing your products and services to stay one step ahead of your competitors. Loyal customers can help you achieve this by providing valuable feedback. 

Existing customers can help you understand what they like and dislike about your products and services, and what sort of changes could improve their experience. Acting on this invaluable feedback to meet your customers’ needs and improve your products and services is how you truly set yourself apart from your competitors, using proactive customer retention strategies to spot new opportunities for growth.

Using insight to retain customers

So, how do you retain your ever-important existing customers? A strong customer retention strategy will involve learning more about customer expectations and their experiences with you. Using deep insight into customer experience to guide your product and service, you can ensure you are keeping pace with their ever-changing needs and are giving them no reason to look elsewhere.  

A successful customer retention strategy should be part of your wider, over-arching CX strategy, in which you understand your customer, prospect and rejecter journey, evaluate your organization’s CX maturity, understand the promises you make to customers and understand the impact positive CX has across every aspect of your organization.  

When it comes to retaining customers, it boils down to the simplest of relationship rules: Show that you value them and they will value you right back.