Managing a business can be a real challenge, and the single biggest contributor to business failure for most is financial mismanagement. Making smart financial decisions can make a world of difference to your business success. And nowhere is this truer than when it comes to investing in customer retention.
Businesses often devote large portions of their budget to attracting new customers. While this is, no doubt, important when you are establishing yourself, what happens to those customers once they have completed a transaction with you?
Many businesses spend so much of their time, energy, and limited resources on luring in new customers, they don’t explore ways to turn current customers into repeat buyers or even consider the financial benefits for doing so, benefits no business can afford to overlook:
- Finding a new customer costs six to seven times more than keeping an existing customer.
- Existing customers are 50% more likely to try new products and spend 31% more when compared to new customers.
- There is a 60-70% probability of selling to an existing customer versus only a 5-20% probability of selling to a new one.
- 61% of business owners report that more than half of their annual revenue comes from repeat customers.
Not surprising, 70% of companies say it’s cheaper and makes better business sense to retain a customer than acquire a new one and 49% say that they achieve better ROI by investing in relationship marketing over acquisition marketing.
For business owners, retaining customers can be an uphill task but it is, without question, one of the smartest financial decisions you will ever make.
Finding new customers is not only costly but also less impactful than selling to existing customers. Businesses that invest in customer retention experience not only greater cost savings and profit, but several other benefits as well:
Harvard Business Report finds that 23% of customers who are pleased with a brand will share their experience with others. And much of that sharing is taking place online: 85% of customers use social media platforms like Facebook to recommend brands. And friend’s social media posts influence 81% of U.S. online consumers’ purchase decisions. Today’s business owners understand that in this age of social media brand advocacy, maintaining customer loyalty is critical to a brands’ reputation and success.
The New York Times reports that 65% of all new business comes from referrals. This means, on average, two-thirds of consumers make purchases because someone they know recommended a particular product or service.
Additional Nielsen research supports this finding, noting that people are four times more likely to buy when referred by a friend. Simply put, customer retention drives sales, and building long-term customer loyalty can have a profound effect on your bottom line.
Customers will not only remain loyal to businesses that provide excellent customer service; they will even pay more for it. Studies show that half of all customers use a company more frequently after even just one positive customer experience. In addition, 58% are willing to spend more for the higher level of customer service that these companies provide, up to 25% more. There is no doubt that customers will reward businesses which offer friendly, helpful, and personalized service.
With 80% of businesses failing due to cash flow problems, you cannot afford to overlook the financial impact customer loyalty and retention will have on your business.
Attracting new customers is important, but all of the research asserts that acquiring new customers is more expensive and less lucrative than repeat business. Not only do repeat customers spend more than new ones but they can also be leveraged to gain new customers, lowering the overall cost of customer acquisition. We see this today especially through digital word-of- mouth.
The economic advantages of customer retention are too great to ignore. By keeping your current customers happy, instilling loyalty, and securing brand evangelism, you will cut costs and grow revenue. For these reasons, investing in customer retention just makes good business sense.