Customer Centricity : 5 Reasons Customer Retention Is So Important

From Sarah Brooks, of Free People 

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If your business doesn’t have a solid customer retention strategy, you could be leaving a lot of revenue on the table. Of course it is important to expand your customer base, but if you’re so focused on acquiring new customers that you neglect your existing clientele, you’re not doing your business – or any of your customers – any favors.

Smart companies acknowledge the value of going the extra mile to encourage repeat business, and the really smart ones have some sort of customer retention program. Some companies in highly competitive industries, such as telecomm providers, actually have dedicated customer retention departments.

But these are often used as a means of last resort to placate customers who have threatened to leave for one of the company’s competitors. As Alexa Steele wrote in a 2012 article on the Business To Community blog, “Your customer retention department can do nothing to retain customers they never speak to. That’s why your entire company should serve as a customer retention department. Your marketing strategy must include ways to keep your existing customers happy.”

  1. It costs less to keep an existing customer than to acquire a new one. With a repeat customer, almost all of the barriers to purchase have already been crossed. The customer has been sufficiently impressed by your product(s) or service(s) to come back. Although the numbers differ depending upon whom you ask, most analysts agree that it costs significantly more to acquire a new customer than to retain an existing one.
  2. Repeat customers account for a significant amount of revenue. In 2013 the customer loyalty network FiveStars published the results of a study in which they analysed 14 million store visits from more than one million customers, as well as the results of loyalty programmes from over 2,000 businesses. The FiveStars study revealed that loyal customers – defined as those who visited stores at least 10 times – accounted for about 20% of the company's customers. While that may not seem like an impressive percentage, “that 20% drives 80% of your business's total revenue and 72% of total visits to your business,” according to FiveStars. The company added that, depending on the vertical, loyal customers can account for up to 84% of total visits. And over their lifetime, your loyal customer will spend 10 times more than a new one.
  3. Loyal customers spend more per visit. There’s a simple reason this is true: it’s easier to upsell or cross-sell to loyal customers. New customers tend to be more price-conscious. According to Marketing Metrics, the probability of selling something to new prospects is only about 5-20%, whereas the probability of selling something to an existing customer is 60-70%. And actual sales from promotions sent to new customers is less than 1%.
  4. Loyal customers are your best brand ambassadors. Word-of-mouth “advertising” has long been recognized as a powerful influence. (These days, “word-of-social-media” is a force to be reckoned with as well.) And FiveStars’ research has found that VIP and loyalty programme members are 70% more likely to spread the word about your business.
  5. Acquisition is all about quantity, while retention is more about quality. In other words, retention is about long-term relationships, whereas acquisition is mostly about the short-term sale. Without a customer retention plan in place you could find that your business is overly dependent upon one-time sales, so you’ll constantly be chasing that next sale, concentrating on quantity rather than quality. And there are only so many people in the market for your product or service…

There’s a reason that there is an entire marketing discipline called “loyalty marketing,” and a reason that companies of all sizes are getting ever more creative with their “customer loyalty” programs. In the words of that old children’s song, “Make new friends, but keep the old/One is silver and the other’s gold.” Your loyal customers are worth more than their weight in gold.

For more information on starting and maintaining a comprehensive customer loyalty program, see Although the article is dated 2006 it contains good pointers about customer retention and the art of loyalty marketing.

Here is a short list of statistics to support the importance of customer retention efforts.

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