30-second summary:
Long term customer retention is critical but it has an operational growth ceiling
Successful customer acquisition has no limits and can offer exponential possibilities, but must be balanced with retention
AddPeople’s Head of Campaign Management, Matt Rogers, offers seven tips to improve both customer acquisition and retention
There are two key ways that businesses can expand and grow; they acquire new customers or retain existing ones. Resource-light companies may need to focus on one over the other, but true growth is found in combining the two – there should be no ‘either/or’. If only it were that easy…
While companies need both to thrive, a business’s current state or objectives may require one more immediately. However, by understanding both and the data behind them, you can decide which basket to put your eggs into now while identifying ways that you can improve both in the medium to long term.
First…
Exploring retention as a business
Long-term, consistent growth is found in retention. If you’re not sold yet, consider these findings:
According to the book Marketing Metrics, the probability of selling to an existing customer is 60-70%, while the probability of selling to a new prospect is as little as 5-20%.
According to the book The Loyalty Effect, building brand loyalty with 5% more customers could lead to an increased average profit per customer from anywhere between 25-100%.
It’s clear that a customer that spends more time with you spends more money with you. One of the less tangible benefits of this is the impact it has on your brand’s perception. Poor retention is a bad look because if people are getting sick of you so quickly that they don’t return, prospective customers likely won’t bother with you for the first time.
Strong retention can also lead to what still stands tall as one of the most valuable marketing tools around, even in this digital age: word of mouth. People are much more likely to recommend a business to a friend if they’ve been with them for years as opposed to days.
If half of everyone using ‘Service X’ recommended that to just one friend, its user base would increase by 50% without spending a penny. This is also where so many of the recommendation-based offers come from, like how Uber would provide the existing user and the friend they got to sign up for the first time £10 off their next journey.
However, retention also has a hard operational ceiling. You could be doing the best job possible with retention, but if you only have 100 customers in the first place, you’ll still only end up with 100 customers (in simple terms, as these may recommend friends or increase spending for example).
Exploring acquisition as a business
Acquisition simply doesn’t have that ceiling and there’s likely always another demographic or audience you can crack into. Delivering best-in-class retention services might keep your base steady, but the same kind of efficiency with acquisition could see your numbers increase by an almost limitless amount.
By researching which new markets you could target and customers you could acquire, you may even end up learning more about your brand than you expected. Most new businesses begin with a clear audience in mind for their product or service.
However, by unshackling yourself from this and moving into new territory, you may stumble upon a new gap in a market that a variation on your current offering could penetrate. Product/service growth often equals customer base growth.
However, there are downsides to having mostly new customers. For example, if you’ve managed a team before, you’ll understand that an employee’s output will almost always be at their lowest when they’re new to a role. Similar to that, customers don’t truly blossom until they become a spokesperson for your brand. If your customers are all new to you, you may lack these truly loyal investors who breed new customers through the supremely valuable buzz of word of mouth.
Seven tips to improve your retention & acquisition
Let’s start with some actionable advice on taking your retention to the next level:
Find the leaks in the bucket
Every company has a churn rate – big or small – because you can’t stop people from leaving. Instead, treat these goodbyes as lessons to be learned from and set up exit forms/questions for when people do leave; how can you fix a leaky bucket if you don’t know where the holes are? This way, you can identify and minimize – but not always fix – the issues.
Build a progression plan
Maybe your product becomes redundant after a few weeks, or your service simply isn’t providing value after months of using it. Explore a progression plan for users that looks at how you can extract more value out of them, from convincing them to stay, to upselling them on more products or services.
Engage more
70% of buying experiences are based on how the customer feels they are being treated, according to McKinsey. Consider how you could speak to them more, potentially incorporating the pain points you find in the exit forms mentioned earlier and then communicating with them before they even get to the exit forms. By using segmentation and deeper data you can really speak to them in their language.
Provide discounts at the exit
In offering discounts to people when they’re about to leave a subscription or abandon their product cart, you can turn what would be zero revenue into, well, higher than zero revenue. These don’t need to be offered in 100% of all situations, as doing so might lead people to game the system for discounts when they always had the intention to convert. However, even a 10% discount can save a deal that might have otherwise slipped through your fingers.
These tips may help you retain the customers you’ve already got on board, so how do you acquire more?
Seek business partnerships
Choosing the right partner can be difficult; too close to your offerings and you may be aiding a competitor, while them being too far removed from your industry may be confusing to your audiences. That being said, a successful partnership can be incredibly empowering and provide you with access to their contacts, commercial opportunities and – of course – their customer base.
Pay close attention to competitors
Unless you’re at the very top of your industry, then you will have something to learn from your rivals. Maybe they have a new product out that you can build on, or their new marketing campaign shows they’re targeting a new audience. Whatever moves they’re making, you should be paying attention. If they’re successfully increasing their market share and acquiring new customers, then consider how you can repurpose whatever is working for them to suit your business. If they fail, then know the path they walked so you can avoid it.
Ask for referrals from your customers
This is where those customers that have been with you for a while can show their worth, as these are the ones most likely to recommend your products or services to a friend. An even better way to incentivize this is to provide bonuses for people that do this. Say, 20% off for you and your friend if they fulfill an order over £30. This way, you acquire a new customer while rewarding one that’s been with you for a while.
Which should you focus on?
The answer is always going to be ‘both’. When you’re walking, do you focus on moving your left leg or right leg? However, in the interest of not sitting on the fence, we’ll give you a proper answer.
Does your business need immediate ROI? You should focus on acquisition.
Does your business want to expand? You should focus on retention.
A business can’t operate with zero acquisitions and even an unsteady flow of them at the beginning can set up a rocky foundation for the rest of the business to be built upon. However, return customers are almost always more valuable than one-timers and poor retention quickly leads to poor brand image; something many experts cite as being invaluable.
Just like pennies, a customer retained is a customer gained, and you’ll quickly find that improving your efforts at both acquisition and retention will get you into a sustainable cycle that’s good for your team, customers and revenue.
Matt Rogers is Head of Campaign Management at AddPeople.
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