Why focus on customer retention vs. customer acquisition?

Is your growth plan to acquire more new customers? What’s wrong with that? Nothing, if you have all the time and resources in the world, but there’s a smarter way to maintain growth whilst achieving a high customer retention rate. It’s simple, keeping your customers coming back for more will result in a greater ROI.

Customer retention leads to a greater ROI

So how do you create a customer retention strategy that keeps your current customers happy and gives you more business?

There’s no doubt that client retention is the key to making any company profitable whether you’re a B2B, SaaS or retail company or what have you. Using your precious resources to acquire new customers is not always the best strategy. In fact, the probability of selling to an existing customer is 60-70%, whilst the probability of selling to a new prospect is as little as 5-20% (Marketing Metrics).

Your best source of growth – it’s right in front of you

The best source for growth is sitting right in front of you: your existing customers. You just have to make them happy (“oh, that’s what I need to do!”), and then find ways to deliver even more value to them. Take the example of GrooveHQ. When they increased customer retention by 5%, this led to a 95% increase in their profits. Growth without retention is not growth, retention is the single most important strategy for growth.

This is demonstrated by a KPMG study, which states that the biggest revenue driver for companies was, in fact, customer retention (KPMG’s 2014 Retail Industry Outlook). A high customer retention rate can increase profits by anywhere from 5-95% (Bain & Company). In addition, it costs as much as 6-7 times more to acquire a new customer than retain an existing one (Bain & Company).

How to charge more for your product/service

If you’re a SaaS, you might like this fact: Did you know that if a typical SaaS business loses 2-3% customers a month, the business must grow at least 27% annually to maintain growth? (Tom Tunguz). If you need any proof to convince your board that it’s the right strategy, I think that’s it, right there.

Also, if you’ve got a reputation for great customer service, you can charge more for your products or services. As many as 86% of customers will pay more for a better customer experience (American Express), which makes sense as good customer service can be scarce these days.

And – spread the word, too. Make your customers happy and they’re more likely to tell their friends about your company. On average, 11 people tell their friends about their experiences with a company (American Express). If you want referrals through word of mouth and positive online reviews, focus your efforts on keeping your customers satisfied.

If your growth strategy is focusing on acquisition, that’s not necessarily wrong, but to run a successful business, both your acquisition and retention programs have to run in parallel. The issue is that for many companies the focus, therefore investment, is on acquisition only. Can you help your customers to be so successful that they refer their friends and ultimately become brand evangelists?