Grow Your Business Through Customer Retention
Companies are always looking to lead generation marketing initiatives to grow their business. When I speak to them about their business/marketing goals and objectives, it’s always the same–increase sales through new business by x% to grow the company. Don’t get me wrong, new customers are vital to an organization (we’ll talk about that in another post). But many companies overlook the fact that one of the best lead generation and sales growth tactics is retaining existing customers. Let’s take a look at why.
Existing Customers Cost Less
Data collected by the Chartered Institute on Marketing states that acquiring a new customer can cost anywhere from 3%-30% more (depending on your industry/vertical) than retaining existing customers. Do I have your attention now?
Existing Customers Refer Friends
According to research from Bain and Company, in conjunction with Earl Sasser of Harvard Business School, repeat customers are more likely to refer others. In fact, after a single repeat purchase, a customer is likely to refer three others to purchase. After ten purchases, the same customer was likely to refer seven different prospects. One thing to take note here is that the only investment the company has made so far is on the initial customer. Talk about a return on marketing investment!
In another study, research showed satisfied customers will tell nine other people about their positive experience, while dissatisfied customers will tell 22 people about their negative experience. I don’t want to dwell on the negative here, but the impact should be noted to further illustrate the importance of a positive experience.
Existing Customers Are Easier To Convert
Existing customers are more like likely to buy from you again. According to Marketing Metrics, the probability to convert existing customers is 60%-70%, while converting a prospect is anywhere from 5%-20%.
Existing Customers Buy More & Spend More
Existing customers are more likely to buy more and spend more on each purchase. In fact, data suggests that repeat customers could spend up to 33% more than new customers. A great example of this is Amazon. Do you remember your first purchase from this online big box? For me, it was an advertising book by Luke Sullivan entitled, “Hey, Whipple, Squeeze This!” back in the mid-90’s. I opted to try the site to see what it was like to buy online. After having a positive purchasing experience, I returned and kept coming back for more. As Amazon grew their offerings, so did the things I came back to buy from them.
So How Does This Translate To Your Business?
In reviewing these statistics, I’m reminded of Apple with its uber-loyal customers. Has there been a company that has been more focused on marketing their products to their existing customers? Don’t believe me, just look at the long lines in front of Apple Stores every time a new product or an update to an existing product comes out–those are mostly existing customers coming back to buy again. Apple has leveraged marketing to their existing customers to become the most valuable company in the world.
Lastly, the Bain and Company research found that a 5% increase in customer retention rates can yield 25%-95% increase in profits. Additionally, a 10% increase in customer retention yields a 30% increase in the value of the company. According to research from the Gartner Group, 80% of your future profits will come from just 20% of your existing customers. These nuggets of data tell us that the customers that we’re looking for are already buying from us. We just need to do a better job of cultivating them.