By Jeanne Roué-Taylor
The cost of acquiring a new customer is often estimated at five times the cost of retaining the customer you already have. And it isn’t just cost—customer loyalty has a big impact on a brand’s success. A study by Bain and Co. makes the claim that just a 5% increase in customer retention can increase a company’s profitability by 75%. The reason is simple: Due to the high cost of acquisition, a new customer is often unprofitable during the early years, and losing them during that stage is a net loss for the brand.
While the numbers are shockingly large, the real shock comes when you consider how much budget many marketers are willing to spend on acquisition and how out of date many customer loyalty programs are.
Gartner’s 80/20 Rule
What’s more, Gartner states that 80% of your future business will come from just 20% of your current customers. Capturing a customer’s loyalty very early in the relationship has a profound effect on revenue, profitability, and (for a marketer) job security.
While that’s a powerful message, that isn’t the end of the story. Repeat customers are far more likely to spend more (studies indicate 33% more) and have a much higher lifetime value for a brand. Keep in mind, too, that a retained customer is also likely to be an advocate and to help with acquiring other customers.
Ultimately, customer retention hits the three significant measurements of a business—cost, revenue, and profitability.
So Why the Disconnect?
It would appear that customer retention is essential, so why is it so often underserved? For one, programs that reward customer loyalty have been harder to measure than lead generation campaigns, and can be more complex to design, test, and execute. In the typical businesses driven by the urgent needs of the moment, a program that has payoff in months, while more important, can fall off the priority list.
With retention more profitable than acquisition, customer loyalty programs have more urgency than may be apparent at first glance. In fact, customer loyalty programs are critical to the future of the business.