Acquiring new customers and maintaining existing relationships are both key to growing your business. However, do you have any idea what the optimal balance should be between your acquisition costs and customer retention?
It has been argued for many years that customer retention is more advantageous, and even cheaper, than acquisitions. There are many statistics which support this, for example:
- Customers who have done business with you before have up to a 70% chance of conversion again - compared to 20% for new clients.
- A mere 5% increase in customer retention can increase profits by up to 95%.
- Customer retention is five to 25 times cheaper than trying to attract new users.
With supporting facts like these, any business could be forgiven making an enormous effort to retain the customers it already has. After all, if new clients are more expensive to find and harder to convert, why chase them?
Why invest in acquisitions
Without a steady flow of new customers, your business cannot and will not grow in the long term. Even if you have eager existing customers who are still active and using your products or services, their share of the total will decrease over time. You can track this in each of your mailing campaigns in the percentage of users who unsubscribe. Similar "wear and tear" occurs in all marketing channels, including social networks or print ads.
However, there are other reasons why customer acquisitions should not be ignored. For example, your current users may represent a very narrow market. If you focus exclusively on their needs, you can lose many more market opportunities. It can also be an industry where the customer is expected to make a purchase only once or a just few times, and therefore the acquisition of new clients is an essential part of marketing activities. These include the sale of real estate, education and swimming pools.
So, what is the ideal formula for your organization?
Finding the balance
Every business is unique, so there are no one-size-fits-all guidelines that will apply in all cases. Nevertheless, it is possible to make one very general recommendation based on a number of studies and surveys. It's a good idea to spend about 60% of your resources on customer retention and to consider email marketing as a long-established tool for this goal. It will allow you to share discounts, promotions and information about new or additional products on the market with those who have already purchased from you.
The remaining 40% of your marketing budget should go into advertising, social networking, SEO (depending on the nature of your product, of course). However, these are currently the primary channels through which new users are most likely to discover your products and services.
Management guru Peter Drucker once aptly stated that "what is measured can be done". That said, you need to actively monitor your results over time and optimize your settings to ultimately find the perfect balance between trying to gain and retain a customer.
If you are interested in learning more, the following info from First Data Merchant Services summarizes this issue very well:
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