Why customer retention is equally as important as customer acquisition (if not more so..)

It has often been said the best relationships are built on meaningful, long term commitment. There might be the casual fling here and there but successful partnerships are really founded on the idea of settling in for the long-haul. And yet many brands still continue to ‘swipe right’ for lack of a better term, spending millions on marketing that fuels ongoing acquisition strategy, swinging precariously from one new hot flame to the next. So where is the commitment in all of this?

It’s about Give and Take

In marketing it is generally accepted it costs up to five times more to acquire a new customer (CAC, Customer Acquisition Cost) than it does to retain an existing one, with existing customers driving at least two thirds of your overall revenue. That figure might turn heads but it is nowhere near the numbers we actually encounter through working with clients. We have typically seen costs up to 15 times higher to acquire new customers!

Many companies use the old 80/20 principle when it comes to planning marketing spend: 80% of budgets spent on acquisition with 20% on existing. That is crazy when you consider 80% of revenue is most likely coming from 20% of customers. The reality is there needs to be a balance between how customers are valued and engaged and between Acquisition and Retention.

Accept Our Differences

The problem seems to be most businesses focus on customer transaction value as opposed to the customer experience value. We often encounter lists of lapsed customers much larger than those of new/active customers. In reality, the definition of an active customer is usually time dependant. For instance, who is more active; a customer who bought 3 years ago but visits the site at least once every couple of months or a customer who bought a year ago but has only been back to the site once since the purchase?

LTV (Customer Lifetime Value) is a metric used but ultimately not valued. Imagine if you will, spending all day with the kids, sorting out the house, maybe even preparing some food for the evening, only for your partner to come home unappreciative of all you have done that day. Likewise, LTV as a metric might seem as it matters by marketers but is it really appreciated enough to influence marketing decisions? The focus seems to remain on getting people into the funnel without enough effort being spent on creating that loyalty loop.

Customer segmentation and understanding your different customers is a great exercise for every business.

Shut Up and Listen

Finally Communication is key to finding balance in any successful relationship and it’s no different when finding balance between CAC and LTV. Understanding what drives customer decisions and how they interact with your brand should drive retention strategy as much as acquisition.

Simply sending information, be it emails, push notifications, SMS, display, catalogues, batch & blast DM is not enough anymore. Businesses need to stop and listen to their customers, to structure an effective acquisition and retention strategy. Making use of personalisation and relevance in marketing communications makes an exponential difference. And it can make even more difference

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