After more cost-effective growth? Start with the customers you already have.

Every week it seems like there's a new tool to win you more leads, a new marketing agency touting the latest acquisition campaign, or a new channel you need to be seen on to “get your name out there.” If you want to grow, so they say, focus on bringing on new customers.

Yes, new customers matter, every business needs them. But with all this focus on getting new customers, are we neglecting the customers we already have, and missing a chance to grow?

Acquiring new customers will always be part of the mix, but it’s also the most expensive way to drive revenue. And increasingly, it's getting costlier. Retaining customers on the other hand, and growing the value of your existing customers, is a less talked about, but more cost-effective, way to grow. 

A quick disclaimer. Not all businesses lend themselves to focusing on retention. If you only sell ironing boards, no matter how much you try, I'm probably not coming back for another three once I've bought one. But if you're in a business where your customers can reasonably buy again, or buy more products from you, or where you offer services over time, then focusing on retention and customer growth will likely outperform a pure acquisition focus.

A 5% increase in customer retention can lead to a 25% boost in profit.

The numbers don’t lie

Focusing on your existing customers can have a dramatic impact across multiple parts of your business:

• Boost your profits: Increasing customer retention by just 5% can lift profits by 25%.

• Cut your marketing costs: It’s 5× more expensive to acquire a new customer than to retain an existing one, and that gap is growing.

• Close more sales, more easily: The probability of selling to an existing customer is 60–70%, compared to just 5–20% for a new prospect.

• Grow revenue per customer: Existing customers spend 31–67% more than new customers and are 50% more likely to try new products.

Getting started: build the foundations

If you're just beginning to focus on customer retention, the best place to start is with a few key fundamentals:

1. Define the metrics that matter and get your tracking in place.

   At a minimum, you should be measuring your churn rate and measuring this on a monthly basis and tracking your customer satisfaction.  At its simplest, you can calculate churn by taking the number of customers who stop using your service over a given period, dividing it by the total number of customers at the start of that period, and converting it into a percentage. For example, if you had 100 customers at the start of the quarter and 5 left, your churn rate would be 5%. Annualising the number can be helpful for trend reporting, and comparisons to others in your industry.  And if you’re more of a glass-half-full type, you can always flip it and focus on increasing your retention rate instead.

   
   

2. Understand why your customers are churning.

   Don’t guess why, get the data straight from your customer. Knowing why customers leave helps you prioritise the changes that will make the biggest impact.

   
   

3. Make retention a business-wide priority.

   Marketing has an important role to play in reducing churn, but they can’t do it alone.  Churn can be caused by issues driven from all parts of the business, a clunky process, pricing or payment issues, response times, product fit, reliability, or customer service.  Improving churn means putting customers at the heart of your business and having every team, not just marketing, on the hook for improving the customer experience.  Making churn a metric that your leadership team focus on regularly, and your whole business is connected to, is key to making a difference.

Don’t boil the ocean

There are a million tools out there promising to drive retention with personalisation, automation, AI, and more. But if you're just starting out, keep it simple. Focus on a few key basics, build momentum, and grow from there.

Here are three actions you can take right now:

• Communicate with your customers regularly

  Are you regularly connecting with your customers? Keep them informed, add value, and stay top of mind to help retain and grow your existing customers. Don't assume they know about all of your products and solutions, keep them informed about all that you offer, and recommend solutions to suit their needs.

• Improve the customer experience

  Are there pain points in your customer journey that could be causing churn? Sometimes a small fix can make a big difference. American Express found that 33% of customers consider switching after just one bad experience, so it's worth finding and fixing these pain points.

  
  

• Seek and act on feedback

  Are you giving customers a voice, and using what they tell you? Asking for feedback shows you value your customers and want to improve your offering, and businesses that actively seek and apply feedback see higher satisfaction and stronger retention.

  
  

Real world wins - a few examples from my career.

Case study #1. Driving growth in a local kiwi bank through a focus on customers

With Net Promoter Scores (customer satisfaction) sinking and customer churn at an all-time high, the Exec at a large kiwi bank knew they needed to change their approach and focus on their existing customers.  Alongside a raft of activity, they implemented a simple, yet effective step to bring the customer to the heart of the bank and build their own understanding. Each Exec member committing to contacting 10 churned customers each month, and reporting back what they had learnt.  This focus at the highest level of the company helped to create a shift across the business, and over time their combined focus on the customer experience created significant improvements in NPS, customer retention, and profit.

How often are your leaders out talking to customers? Not just your Sales leader, but internal functional leaders too like Finance, Operations, and even the CEO.

Case study #2:  Focusing on your most valuable customers

The 80/20 rule generally holds true when considering the value your customers bring; 20% of customers generate 80% of your profit.  Once you’ve had a few months of customer history, working out who these customers are is easy, but how do you tell which customers are likely to be in that top 20% from the start, and ensure they get off to the best start? 

PayPal Australia not only had this challenge in the SME segment, they also found these ‘future high value’ customers were the ones with the worst experience through those early months, due to the complexity of their business.  By analysing application data, we identified early markers of future high value and funnelled these customers into a more personal onboarding experience.  The result:  faster onboarding, happier customers, reduced churn and increased revenue.

Your Retention Marketing checklist

✅Do you track your churn rate on a regular basis, and share this across your company?

✅Do you have processes in place to find out why customers are leaving?

✅Does everyone in your team have a clear understanding and ownership of the role they play in retaining customers?

✅Can you easily communicate with customers, and do you do so regularly?

✅Do you make it easy for your customers to give you feedback, and do you act on this?

✅Are your best customers getting VIP treatment?

✅Are your customers aware of all the products and services you offer, and do you encourage them to try new products when you bring them to market?

✅Are you encouraging customers to give referrals?

✅Do you know the earlier indicators of churn and have activity in place to reduce the risk?

Final thoughts

While we all need to acquire new customers, be careful who you acquire and how you acquire them.  Using price led offers can generate a quick jump in new customers, but it can also lead to attracting less loyal, price-driven customers, who tend to regularly jump ship to the next provider when the next offer becomes available.  Make sure you’re acquiring the right customers to be able to build long-term, profitable relationships.

If you need help assessing your churn rates, putting in place your customer retention foundations, or getting after improving your retention rates, get in touch.