Last editedDec 20223 min read
One of the most common mistakes that new businesses make is focusing the bulk of their marketing and sales efforts on lead generation. While it’s important to attract new customers to grow a business, the benefits of customer retention should not be overlooked. Though retention takes time and effort, it’s well worth it. So, what are the benefits of customer retention? Here are six ways that customer retention can make your business more competitive.
1. It costs less than new customer acquisition.
You may have heard the commonly held belief that acquiring a new customer costs five times as much as retaining an existing one. This basic principle has been proven time and again by market research, though exact figures vary by industry. It makes sense; acquiring a new customer requires outreach and incentive to make that first purchase. Your sales team can spend months pursuing a promising lead only to fail at the end when the lead chooses a worthy competitor. Nurturing existing customer relationships also takes some effort, but because you already have them on the hook it is less costly than starting from scratch.
2. It builds loyalty and referrals.
Another benefit of customer retention is free advertising. When customers are happy with a brand, they often share their positive sentiments with others. Whether it’s through old-fashioned word of mouth or modern social media, this can pay off for businesses in the form of personal referrals. Keeping customers happy means they’ll share positive reviews online, improving your rating for new leads at first point of contact.
3. Customer retention increases profit.
Loyal customers spend more over time. This is particularly true for businesses following a subscription pricing model, which ensures a steady cash flow from regular customers. Engaged customers not only renew their contracts or subscription services, but also are more likely to branch out and try new products. In fact, existing customers are 50% more likely to try new products, spending 31% more than new customers overall. This leads to higher lifetime revenue.
4. It reduces customer churn.
Customer churn is a costly business. Churn rates refer to the number of customers that stop using your products or services. This can be due to poor customer service, product quality, or being outmatched by the competition. A high churn rate slows growth and ties up your sales team’s efforts as they find out what’s gone wrong. Furthermore, the cost of acquiring new customers is higher than retaining existing ones, as we’ve outlined above. By focusing efforts on retention, you can reduce churn at the same time.
One thing to note is the difference between voluntary and involuntary churn. When a customer actively decides to stop using your services, this is voluntary. Involuntary churn happens when a customer’s payment details expire, or payments fail. GoCardless helps businesses reduce involuntary churn with our Success+ intelligent retries tool, which minimises payment failure.
5. It paves the way for innovation.
With a secure base of satisfied customers, your business is free to pursue new product development. This opens the doors for a little experimentation with your marketing and branding on a willing audience. Just take care not to change things around too much; find out what your existing customers appreciate most and make sure their preferred services remain available. A high number of changes at once could scare loyal customers away.
6. Customer retention goes hand in hand with engagement.
Finally, you’ll benefit from improved customer engagement. It’s helpful to perform a customer retention analysis every so often to find out more about what your customers like and dislike. This allows you to fine-tune your product offering to meet client demand and improve the buyer journey at every stage. It’s difficult to perform this type of analysis with new customers. You need a core base of loyal clients to really boost engagement across multiple demographics.
In short, don’t be afraid to ask for feedback. Customers want to know that businesses are listening. By taking the time to understand and appreciate your existing customers, you’ll not only improve profits but create a better customer experience.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.
Improve customer retention by reducing the involuntary churn your business suffers - by setting up automated bank payments, you’ll never lose a customer to lost card details again.