Customer retention vs customer acquisition: the real cost difference
How much does it really cost to retain an existing customer in comparison to acquiring a new one?
Since the call center is often viewed as a cost center while the sales department gets a shiny new budget, customer service managers are often seeking proof points to justify increased budgets. But the call center is the front line of defense for customer retention and customer loyalty, so in reality, the customer service department should be getting the lion’s share of the budget!
Customer acquisition vs customer retention: the stats
Part of the challenge of the acquisition-vs-retention question is that no one can really agree on what the value difference is–just that there is one. Ian Kingwill wrote an excellent post on LinkedIn citing fifteen different sources claiming it costs anywhere from 3 to 30 times as much to acquire a new customer as to retain an existing one. A small sampling of his research:
- “We know that it costs more to acquire a new customer (roughly seven times) than it does to sell to an existing customer, so it makes sense to spend much more of your marketing effort with people who know you rather than with absolute strangers.”
- “It’s generally accepted that it costs three times more to find a new customer than it does to sell to an existing customer.”
- “Conventional business wisdom contends that it costs 10 times as much to obtain a new customer as it does to retain an existing customer.” Pricing for Profitability: Activity-Based Pricing for Competitive Advantage By John L. Daly (2002), p85. Published by John Wiley and Sons. ISBN 0471221597
- “The commonly quoted ‘average’ being ‘it costs 7 times more to sell to a new customer than to an existing customer.’”
Whichever statistics you choose to cite, almost everyone agrees that putting time and budget into customer retention is cost-effective. So why are do so many organizations lack customer retention initiatives?
“Unlike lead generation or customer acquisition, retention campaigns take relatively longer before producing results,” says Jerry Jao, Co-Founder and CEO of Retention Science. “When you publish a lead gen form or launch an ad campaign, you can easily see and measure the results. This isn’t always the case in customer retention because it deals more with loyalty, relationships, and engagement, which yield results that are not immediately seen and/or are trickier to measure.”
In short, customer retention isn’t as sexy and exciting as customer acquisition. It’s a bit of a long-tail effect, and a difficult one to measure at that. But considering that the fastest way to lose a customer is through a single negative customer service interaction, it’s worth taking the time to think through a solid customer retention strategy.
How to marry customer acquisition and customer retention
The key to improving customer retention is to stop seeing customer acquisition and customer retention as two separate initiatives and never the twain shall meet.
Most marketers and sales folks agree that a third-party, word-of-mouth endorsement is an invaluable asset for new customer acquisition. Our own 2015 Call Center Report showed that 78% of customers will share a positive experience with others, while 91% will share a negative one. And when it comes to social media, 50% will share a negative experience on social media, but only 32% will share a positive one. These numbers tell us that customers do talk, and they talk more when they’ve received bad customer service.
But let’s focus on the positive. With every positive customer service interaction, you have the opportunity to generate good word-of-mouth, both in real life and on social media. And word of mouth translates to the gold standard of customer acquisition: referrals. Referrals are priceless within the sales process, and doubly so when they are made online through social media. As Reichheld and Schefter said, “word of mouse spreads even faster than word of mouth.”
Three steps to customer retention
- Measure, measure, measure. You cannot improve what you don’t measure. Do you know your current rate of customer turnover? Your current rate of customer satisfaction? Your front line agents can tell you what 80% of customer complaints are about; the contact center is your offensive line for customer retention. Not sure how your agents are helping or harming retention rates? Use a third-party quality firm to conduct a quality process evaluation.
- Ask, ask, ask. Think you know what your customers think of your brand and your product? Think again. The only way to know is to ask. And ask. And ask. After every interaction. The content marketing provider HubSpot does a fantastic job of this–not only do they provide regular valuable content via their blog and subscription email, but after every customer service interaction, they send an email to ask if your question was answered. Yes, after EVERY single interaction. Every time you call, email or visit HubSpot, you’ll be asked if you got what you needed.
- Engage, engage, engage. It’s important to engage your customers when they aren’t having a problem as well as quickly resolving one when they do. Do you have a newsletter that provides valuable content? Do you give customers the opportunity to participate in focus groups, poll and message boards to improve the product and vote for the features they most desire? Do you participate in community events, charity campaigns and green initiatives in your community where you can interact with customers in real life? Alex Lawrence, a Forbes contributor, also recommends engaging through social media to keep your finger on the pulse of their brand loyalty as well as running promotions that make current customers feel good about your company.