Every business needs customers to survive, and it undertakes every possible action to get them. It runs advertisement campaigns on television, in print, and even on web. It hires public relation firm to build trust and create positive corporate image. It hires search engine optimization expert to make their web presence prominent. It does everything that is needed to be done – from sponsorship to realizing corporate social responsibility to hiring best people to making product available within the customers’ reach to pricing it attractively.
A company does everything to acquire new customers, but when it comes to retaining them, most of the businesses fail; may be because some of the decision makers do not see any point in spending time on retaining customers. I have heard business people saying that why should they worry about customer retention, if they can get a lot more by spending some dollars on promotion.
I wish they knew why it is important for them to retain their customers for as long as it is humanly possible, and how customer retention becomes the only difference between a failure and success in business.
Benefits of customer retention
No acquisition cost
It takes time and money to acquire new customers. How much money it will take to acquire a new customer depends upon how crowded the industry is, and how high the customers have raised their perceptual boundary. The money needed to create could be anything from 10 cents to 1000 dollars, and even time spent could range between seconds and hours even days.
Because your job is not to find customers, but to serve them
Indeed. You are not in the business to have fun in hiring and firing your customers. We are here to make some money and that too without much effort — well, there are may be some people who love hiring and firing game.
You can focus on doing what you know best
We all know that hiring new customers require time. We need to itch out a strategy then create an acquisition plan, implement it, and wait for the data to flow in, so that we can analyze what is working and what is not. Meanwhile, it is also our job to keep an eye on the number of customers that come as an effect of new strategy. Afterward, we tweak the system and rinse and repeat it.
All this is time consuming, and if we devote our resources on this activity then when will we create value for the customers we have just acquired, or those who are with us for long time? We need time for that as well; therefore, instead of finding a new customers everyday and forgetting old ones, we should be focusing on retaining our existing customer. This will give us a lot of free time to create value by doing what we know best, and from what customers come to us.
You know what your customers need, and what are their aspirations, fear, and desire
Not just acquisition takes time, but building a relationship also takes time. After we have successfully wooed new customers, we need to spend time and energy on building a relationship with the new customers. We need time to understand their desires, aspirations, expectations, spending pattern, and their price sensitivity. And while we do that, the profit from new customers remain on the lower side.
The effort on all this could be saved provided you decide to concentrate your effort on retaining your existing customers. With existing customers you do not need to think too much about anything that we discussed above. We already know it.
You have already recovered the acquisition cost on existing customers
As said, it takes time, energy, man power, and money to acquire a new customer, and all this adds up to the cost, which means diminished profit. It is only after the customers are with us for some time that we recover the cost incurred during the acquisition process.
With existing customers, we already have recovered the cost, so they are already profitable. This cannot be said about the new customers, as they are yet to prove their worth. And at the onset, we even do not know if they will stay with us or not. So why take chances?
I hope this article has been convincing enough, and have helped you make a more informed decision for your company. New customer acquisition should be done (after all, this is how we grow), but not at the cost of losing existing customers.
I wrote three more articles on the same topic. You can click on the links given below to know more about customer retention.