To answer the main question - what should you focus on regarding your business - we have to answer a few other questions: What is customer retention and what is customer acquisition? What are the real statistics and insights regarding these two marketing strategies? What is more beneficial in the case of “customer retention vs acquisition” Finally, what are the best practices for both customer retention and customer acquisition?
Let us deal with it.
Customer retention definition
Customer retention is referred to as the number of customers who are staying with your company during a pre-chosen time period. As you could guess, those customers who prefer your business to other companies are satisfied and happy customers who consider your products and customer service better than your competitors provide.
Customer retention exists in a few measurements: as a customer retention marketing strategy, as a customer service metric, and as a business goal. A customer retention marketing strategy can be defined as a strategy that makes a company focus on retaining its customers.
Customer retention as a customer service metric has a specific formula that is used to measure the number of retained customers.
Here is the customer retention rate formula:
Customer retention rate = (Number of retained customers per selected period of time - Number of acquired customers per this period of time/ Number of all customers per selected period of time) x 100
Customer acquisition definition
Customer acquisition is a marketing strategy that focuses on acquiring new customers to the business. In other words, it covers all processes and operations that are focused on generating new customers, like advertising, cold calling, inbound marketing, and so on. Customer acquisition is also a marketing metric because it is not related to customer service as customer retention is. But to be precise, there is no “customer acquisition rate” because it would be useless - the number of customers you acquired can’t give your enough information to analyze, because it doesn’t contain such vital data as customer value, customer lifecycle, and so on. There is another formula you have to know - customer acquisition cost (CAC)
Here is the cost of customer acquisition formula:
Customer Acquisition Cost = (All costs spent on marketing and sales, including paid ads, labor costs, tools, affiliate marketing budget, and overhead per selected period of time/Number of customers acquired per selected period of time)
Another question is - what is the customer acquisition cost industry standard? In other words, what cost is high enough to be defined as harmful to your business? There isn’t any answer that would sound as: “Well, X dollars per one acquired customer is a good price, while 2X is a bad price”. To understand if your cost of customer acquisition is good or bad, you have to compare it to customer lifetime value - the only sales metric that will help you determine the effectiveness of your customer acquisition marketing strategy.
If customer acquisition cost correlates with customer lifetime value as 1:3, you are on a good track - it is generally accepted industry standard, but it doesn’t mean that correlation 1:2,5 or 1:2,2 is bad - you have to analyze it based on all data regarding your business processes - if the customer acquisition cost is low, and you have enough resources to invest in it without harm for other business processes and operations, you can continue doing it if you see positive tendencies. Let us be honest, a few of us have reached generally accepted industry standards for different marketing strategies in the first few months.
What is cheaper - customer acquisition vs retention?
This question is easy to answer - customer retention is from five to twenty-five times cheaper than customer acquisition cost. Why is it so? Well, it isn’t surprising that customer retention costs less - first of all, it just doesn't include all costs you spend on marketing to find a prospective customer, convince him or her that you are better than competitors, and process the deal. Nonetheless, it doesn’t mean that customer retention doesn’t need investments and effort or the cost of customer retention is 0$ per year - permanent contact with customers and showing off your customer care and personalized service also costs a lot, especially if we take into account that many industries are really facing high competition. But let’s move to other stats:
- 44% of businesses focus on customer acquisition and retention is the priority for 18% of companies only;
- The chance to sell another time to current customers is around 65%;
- For new potential customers, a chance for a successful deal is only from 5% to 20%;
- 89% of companies state that excellent customer service is vital for customer retention;
- 61% of retail businesses state that customer retention is the most challenging task for them;
- Since 2016, customer retention average rates have fallen by 37% because of bad customer service;
- In the US, companies lose around 30% of their clients per year due to a lack of customer loyalty strategy;
- Finally, 65% of your revenue will come from existing customers only.
What conclusions can we draw from these insights? First of all, customer retention is a vital aspect of business if you want your company to be stable and get permanent revenue from loyal customers. Secondly, customer retention is closely related to customer loyalty - disloyal customers will never be satisfied and stay with your company for a long time. Finally, most companies still put everything on the line when it comes to customer acquisition.
If customer retention is that beneficial, why do most businesses still put everything on the line when it comes to customer acquisition?
First of all, all the stats above don’t cover one little, but vital thing - the difference between industries and business models and the environment. For instance, what if we say that for most startups and in the real estate industry customer acquisition is much more important than customer retention? Sounds obvious, but in some stages of business development, you just don’t have a stable current customer base to bet on it.
Furthermore, as we have already mentioned, you can’t just say: “I’ll focus on customer retention only”. Even the most successful companies in the field of customer retention still lose around 20% of their customers per year, and now let’s imagine what will happen if they stop investing in their customer acquisition strategies and customer acquisition efforts. They’ll run out of customers.
On the other hand, in some industries, client retention is much more important than client acquisition - for instance, in financial services, insurance companies, healthcare, and other industries where high competition made a customer acquisition cost so expensive that it became non-beneficial to focus on it.
Nonetheless, this is all about theory but to close the topic we still have to take into consideration a few things:
- Customer retention is the most vital aspect of your business if you want to become successful;
- Ignoring customer acquisition leads to negative consequences;
- The cost of customer retention is cheaper, but it still requires much effort;
- For some businesses and for those who have just entered the market customer acquisition is the main goal;
- Industry-standard for client retention rate is over 80%;
- Industry-standard for client acquisition cost is 1:3 compared to customer lifetime value.
Now, when we have finished with that, let’s move to a more interesting part of the story - what are the best customer acquisition and customer retention strategies?
Customer retention tips and best practices
Collect customer data
This is the starting point for your customer retention strategy as you can’t be the king of customer retention if you don’t know who your customers are. First of all, you have to use a great CRM (Customer Relationships Management) system that will be integrated with other tools you use to contact your customers, for instance, contact center software. Customer data lets you understand the preferences, expectations, needs, and problems of your customers, and this leads to a personalization of your customer service - another tip you have to follow for spectacular customer retention rates.
Show value for a customer
Customers should understand why they need to stay with you, especially if we take into account that advertising and competition become truly aggressive and customers can be easily stolen by your competitors. Showing the value of being your customers may be provided in the following ways.
Customers, especially satisfied customers, are often ready to share their referrals with you, but it must be a fair exchange. If you create a referral program like “Invite your friend and get 25$ as a coupon” that will make sense for customers to look for referrals and share them with you. In other words, this is another way to not only find new customers - so it is also a great client acquisition strategy - but to delight current customers and retain them.
Customer loyalty programs
Customer loyalty programs are truly important for both customer loyalty and customer retention growth strategies, as they are one of the best customer retention campaigns in the world. The biggest hint about them is to offer customer loyalty programs from the early beginning to new customers, showing their benefits at the starting point of the customer journey. Moreover, you have to create customer loyalty programs that will become more beneficial for clients after a while - for instance, they will get higher personal discounts after a year of being a permanent customer than they would have gotten after three or six months.
Qualitative customer service isn’t all about speed, but speed is crucial. When we are talking about speed, it’s not just a theoretical issue - there are exact customer service metrics concerning the speed of customer service and customer issues resolution. They include:
- First Call Resolution rate - the percentage of customer service requests resolved during first contact.
- Average Waiting Time - the time customers wait for reaching your customer service team.
- Average On-Hold Time - the time you put customers on hold during their customer support calls.
- Average Resolution Time - the time spent on the resolution of the issue, starting from registering the support request to marking it as “resolved”.
Focus on these metrics to improve your customer service experiences and provide better support. Additionally, when we are talking about customer service speed, let’s state that fast delivery is also a very important part of it. Thus, you will achieve an improvement in customer retention and customer satisfaction.
Provide personalized service
Do you remember gathering customer data? That’s it. Use this data to provide personalized customer experience - this refers to congratulations on important dates in customers’ life, recommendations of personalized offers like products that will solve customer pain points, regular follow-ups with empathetic content, collecting customer feedback and taking it into account, providing gifts and special offers, educating customers about your products and services, and so on. Studies show that over 65% of clients expect you to understand their individual needs, and that’s what you have to offer.
Another vital part of customer relationship management and client retention is feedback collection. But what is vital about customer feedback is that you don’t only need to collect it, but take it into account and make decisions that will meet customer needs and customer expectations. As research shows, 42% of companies collect feedback and…just ignore it. It isn’t a great idea to do so because the fact that you collect feedback doesn’t make you great - hearing customers is what you really have to do.
Best client acquisition tips and practices
Define client acquisition channels
Customer acquisition is available through many communication channels, including digital channels and non-digital channels, like World of Mouth marketing, referrals, etc. You have to decide which channels will be your preferred channels and where do you focus on. Focusing on digital advertising through Google Ads or SEO will be crucial for further development of your strategy.
Research your target audience
Your main goal is to understand who your future customers are and what their pain points are. This is vital to learn about potential sales pitches and hooks to catch their interest and get high conversion rates. Also, you should better segment your target audience to test a few different approaches to customer acquisition - this always works better than “one size fits all" approach.
Don’t forget about cold calling
Even though some people complain that cold calling is dead, it isn’t. For instance, in B2B over 55% of executives prefer phone calls as the main communication channel. The same it works for B2C - cold email marketing, for example, will never offer the same success rate as cold calls. There is only one problem - you need a specific tool that will automate the cold calling process to save your sales agents time for real conversations. Fortunately, such a tool exists.
Have you ever heard about an all-in-one solution for both client acquisition and client retention?
VoIPTime Cloud Contact Center is the solution that can help you to improve both client retention and client acquisition. How? Let’s find it out.
First of all, VoIPTime Contact Center is the best solution for customer service - it offers multichannel communication as its main feature, and this means you can gather all communication channels - web chats, messengers, emails, phone calls and chatbots - on one interface where agents can manage all of them simultaneously. Secondly, VoIPTime Cloud Contact Center is the thing that will make your customer service not only qualitative but fast - do you remember that we said it is vital? All needed customer service metrics will be provided in real-time dashboards so you can find imperfections and problems and deal with them immediately. Thirdly, our solution offers many features for quality assurance to let you control your call center agents - including call monitoring (in three different modes) and call recording that can also be used for training purposes. It can also be integrated with CRM systems via API, so there are plenty of opportunities for customer service personalization. Advanced IVR and ACD software tools will make your call routing intelligent and connect customers with the most experienced agents from the first attempt, while IVR self-service will be available 24/7!
For customer acquisition, you will get three auto-dialing modes, including the most advanced Predictive dialer that can dial over 800 dials per 8 hours, while manually you can’t do over 250! It also identifies invalid phone numbers and redials unsuccessful calls automatically in accordance with pre-set redialing rules.
Don’t spend hours thinking about what is better - customer acquisition vs retention or vice versa - boost them both!
Contact us to discuss your needs and see Voiptime Contact Center in action!