What is the cost of acquiring a new customer compared to retaining a current one?
Research, surveys, and formulas produce a wide range of results to this question, but most sources conclude the answer is: it costs between 5 and 10 times more to acquire a new customer than it does to keep an existing one. Even more important is, according to Gartner, 20% of your existing customers will produce 80% of your future revenue.
Another key factor is calculating your Customer Lifetime Value (CLV). A CLV can be used as a basis for deciding how to allocate resources most effectively into sales, product development/improvement, marketing, and customer service. For example:
Sales: Define your target market and establish what a reasonable cost to acquire a new customer is?
Product Development: How can you bring more value to your best customers?
Marketing: How do you effectively get the message out to reach your target markets?
Customer Service: How much should you spend to improve the customer experience to increase retention?
The Value of Customer Retention
In a recent e-book by Bain and Co., they stated, “increasing customer retention rates by 5% increases profits by 25% to 95%.” Here’s another finding in eConsultancy report released in 2016 – “82% of companies agree that retention is cheaper to execute than acquisition.” Finally, according to Forbes, “companies focused on retention are nearly 50% more likely to consider projected long-term profitability growth when making decisions about customer strategy.”
What are the most common reasons for losing a customer? Here’s a graph from Kissmetrics:
As the graph shows, 82% of customers leave because of the treatment they received (lack of quality interaction) or they became dissatisfied with the products and services (lack of improvement, stagnation).
If you’re a solution provider what are you doing to improve customer retention? Are you introducing new products or services? Are you developing better customer support? Are you implementing solutions to better understand and meet your customer’s needs?
One effective way to achieve all three of these objectives is by implementing a comprehensive asset and support contract solution providing your customers with a web based portal for access to asset and support contract data. Along with portal access, resellers have automated the renewals with expiration notifications, customer dashboards, and quoting processes. Their customers are able to log-in and view all of their equipment, software and associated contracts and receive notifications of impending renewal activity.