Challenge 1 – How to grow your business in a competitive market

Customer retention is the best strategy to deliver business growth and it’s lower cost focusing purely on customer acquisition strategies.

The old way: Focus on customer acquisition

When business leaders decide to grow the business they will immediately focus on strategies to increase customer acquisition. Being able to systematically attract and convert new customers is important to keeping a business healthy and growing. But short-term strategies to increase customer acquisition, especially if customer churn rates are high, is likely to do as much damage as good.

Over the last five years the cost of acquiring new customers has increased by 50%. Marketing costs are escalating and consumers are increasingly suspicious of promises made by brands. To cut through the noise and convince someone to become a customer requires considerable resources and effort.

Old results: Pedalling fast just to stay still

If you are losing a certain number of customers each month, you must replace them before you start to see any growth.  Considering that you may be spending so much time, effort and money on acquiring new customers, this may impact your ability to look after existing customers.

Remember, new customers are not as profitable as long term and loyal customers. So even if you are acquiring new customers, you are likely to be reducing overall profitability while increasing costs.

Losing customers at the same rate you are acquiring equals a zero net gain. At great expense, you are pedalling really hard just to stay still.

The new way: Retain your existing customers

It’s an established fact that it can cost up to 25 times as much to acquire a new customer as to retain one. A 5% increase in retention can increase revenue by 25 to 90%. Happy customers are more likely to purchase again and they will promote the benefits of your products and services to other customers.

Working towards retaining your customers, rather than paying to replace lost ones, is an acquisition method in itself. It’s actually the most cost-effective acquisition strategy you can adopt.

In addition to knowing the cost of acquiring a new customer, it’s helpful to know how much value a retained customer provides your business. Both of these are important metrics to calculate and compare when reviewing acquisition and efforts.

Customer lifetime value is the estimated net profit that an individual or business will provide over their lifetime as a paying customer.

Customer LTV is a helpful factor to consider when getting to know your customers and how they interact with your business. It also provides a clear valuation of your marketing and support efforts and helps influence business decisions across the board.

New results: Lower the cost of acquisition and increase ROI

Improving customer retention means business growth can be achieved at a lower cost than focusing purely on customer acquisition strategies. Loyal and happy, long term customers are more profitable than new ones. They require less sales and marketing effort, they provide cross-sell and upsell opportunities, and they are a strong source of referral business.

Happy customers also complain less and are less price sensitive.


Useful Unique Insight (UUI)

Retaining customers is more cost effective than replacing them.  You can see in the following diagram, how reducing churn by just a small amount can deliver business growth.


More reading on shifting the focus to customer retention to drive business growth.


We at SmartMeasures are helping companies shift their focus to retaining customers to grow their business.

If you would like to know more, get in touch.