• RSC Marketing and Advertising

Acquiring New Customers Isn’t Enough!


This week we are diving into the importance of Customer Retention, with a focus on the overall value of a current customer, how you can easily re-sell your products and services to them, and how you can allocate a much smaller advertising budget to engage with them.


First, what do we mean by acquisition vs. retention? It’s actually quite simple.


Customer Acquisition = gaining NEW Customers


Customer Retention = keeping the Customers that you have


Acquiring new customers isn’t enough to sustain your overall business. Retention is the point of weakest resistance and lowest cost marketing strategy to increase sales!


Don’t get us wrong, new customer acquisition should be a key component to driving additional business and is essential to sustaining growth. But typically, increasing the customer base is a more expensive marketing strategy because the cost per acquisition is higher than selling to already satisfied customers.


Fact: Did you know that the cost of acquiring a new customer is 5 times more than retaining an existing one?


Fact: You can increase your profits by 25-95% by increasing your customer retention.


Fact: The success rate to sell to a customer you already have is 60-70%, while the success rate to sell to a new one is 5-20%.


Sell More to Your Existing Customers


You are missing a huge opportunity if you aren’t cross or up-selling to your existing customer base. In fact, it is proven that effective client retention is an excellent way to increase the volume of sales and is a much more lucrative approach than the revenue you’ll make on a new client. Current customers almost always buy more and refer business to their family and friends (at no cost to you).

What is the Value of a Loyal Customer?


How long do your customers stay customers? Loyal customers have a deep relationship with your business and offer more trust than new customers. Just like a good friendship, a loyal customer can last a lifetime! And the value of a loyal, lifetime customer (given the percentages we just shared) can be HUGE!


Do you know the value of a lifetime customer? This is a prediction of the total profit generated by a customer over a certain period of time. You can easily calculate this number but first you need to figure out your Customer Acquisition Cost.


Total Marketing Investment

# of Customers Acquired


Once you have this number you can plug it into a simple formula to calculate your Customer Lifetime Value:


Annual revenue per customer * Customer relationship in years - Customer Acquisition Cost.


Here’s a real example:


Annual Revenue Per Customer = $3,000

Average Customer Lifetime = 10 years

Customer Acquisition Cost = $5,000


$3,000 * 10 - $5,000 = $25,000


By knowing these numbers, you can justify how much you spend to acquire a new customer in the first place which segues nicely into how much of your marketing budget should be allocated to client retention.


How Much of Your Marketing Budget Should You Allocate to Existing Customers?


You can turn one time buyers into loyal customers rather easily as long as your messaging is consistent and relevant to their needs. Current customers tend to buy more from you and even refer their friends and families. They talk about your brand, share feedback, write reviews, post on social media and other networks. Word of mouth marketing is extremely powerful and is said to be the most effective and credible source of advertising. According to the market research from Nielsen, when it comes to purchases, customers trust friendly feedback more than expensive, fancy ads. And don’t overlook the importance of utilizing a CRM (customer relationship management) application to better segment your advertising and merchandising. This type of tool allows you to track what customers buy and then suggest additional purchases based on their shopping history. A CRM app also allows you to automate many of your retention tactics and can help drive people to your website to enhance your website’s SEO performance.


How Do You Calculate Your Customer Retention Rate?


It’s actually a pretty straightforward and easy formula.

  1. Find out how many customers you have at the end of a given period (week, month, or quarter).

  2. Subtract the number of new customers you’ve acquired over that time.

  3. Divide by the number of customers you had at the beginning of that period.

  4. Then, multiply that by one hundred.

Here’s what it looks like in a real business example:

If you had 1,000 customers at the beginning of Q1 and 1,200 customers at the end of Q1, after having won 300 new customers over that same time period, your Customer Retention Rate would be 90%.

1,200 customers at the end of a period - 300 customers acquired

1,000 customers at the beginning of the period X 100


= 90% Customer Retention Rate


In this business scenario, you lost 100 customers. This number can be significant and indicate that immediate attention needs to be paid to your customer base. That is why knowing your Customer Retention Rate is so important!


How satisfied are YOUR clients? A satisfied customer is the best business strategy of all! Be sure you have a good handle on the status of each of your clients. You can assign them by segment, for example, loyal, loyal at risk, former loyal, new at risk, etc.


Don’t be afraid to pick up the phone to call and check in. Having an interpersonal interaction is really important. You cannot rely on emails, newsletters or social media posts. Just one personal interaction per quarter could result in 0% client loss!


Show You Care!


Customer engagement is critical to business growth. Clients need to feel that you're “vested” in their business and that you genuinely care about their success. This goes beyond sending a gift basket over the holidays or taking them out to lunch. Your very best clients only feel it when they see it. It’s your job to show them that you’re vested both in their personal prosperity and as well as their organization’s success.


What value do you offer your customers? The more value your business can offer, the more likely they will remain loyal. Here are some strategies that we’ve put together to build a long term, loyal, lifetime customer!


Download Your ✓ FREE

Client Retention Strategies


RSC Marketing & Advertising provides small and medium size business owners with affordable and creative marketing services designed to increase sales.


We would love to speak with you about your business! Call us today at (888) 728-0703 or email us at info@rscmarketing.com. For a complete list of services, visit our website at rscmarketing.com


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