Why loyal customers pack more value

Customer Retention vs. Customer Acquisition: Why Loyal Customers Pack More Value

Hanging on to your current, loyal customers packs more bang for your buck than acquiring new customers.

Research shows that for every cent a company shells out to improve customer service, the ROI is between 34 to 400 percent. And the recurring revenue that comes from your existing, loyal customers is predictable. The more predictable your revenue, the more valuable it becomes.

When you have an expected stream of cash flowing into your business, you don’t have to scramble to cover the costs of doing business. Instead, you can amplify the value of your company by adding new customers on top of it. Then, as you reel in new customers, you begin reaping the benefits of your loyal customers’ recurring revenue stream.

Companies in the U.S. lose $1.6 trillion from customers jumping to competitors because of poor customer service. With that amount of money, you could pocket 93 percent of all the cash circulating the U.S. Or, you could buy everyone in Chicago their own starter home, with money in your pocket left over to put a new Lamborghini in each person’s garage.

Here’s the dollar-for-dollar comparison that makes prioritizing customer retention and a recurring revenue stream oh-so clear.

Comparing the costs and profits of customer acquisition vs. retention

1. It’s anywhere from five to 25 times cheaper to retain an existing customer than it is to acquire a new one. (Harvard Business Review)

That means if you spend $5,000 to snag a new customer, you’ll only spend between $200 – $1000 to keep a current one.

2. A 5 percent increase in customer retention increases company profits between 25 to 95 percent. (Bain & Company)

If you’re raking in company profits of $20 million and you improve churn by only 5 percent, your profits will jump to $25 – $39 million.

3. Repeat customers convert at a 60 to 70 percent rate compared to new prospects, who fall in the 5 to 20 percent zone. (Marketing Metrics)

Out of a pool of 1000 current customers, 600 or 700 will buy from your company again. But, out of a pool of 1000 new customers, only 50 to 200 will buy from you again.

4. Your existing customers are 50 percent more likely to try new products and services your company releases, and they’re willing to spend 31 percent more compared to your new customers. (Invesp)

For every $500 your current customers spend on new products and services from your company, there’s half the chance that your new customers will spend $345 on those same offerings.

5. It costs 16x more to nurture a new customer to the same level of revenue contribution of your existing, loyal customers. (Francis Buttle)

Let’s say every year you spend $300 per existing customer to keep your happiest customers coming back. To bring your new customers up to par with the same purchase power as those loyal customers, you’d spend $4,800 per new customer.

6. Your average repeat customer will spend 67 percent more during months 31-36 in their relationship with your company than a new customer will in their first six months. (Bain & Company)

After nearly three years of dedication to your company, a loyal customer is willing to spend $400 with your company. Comparatively, when you sealed the deal and acquired that customer, they were only willing to spend $132 in their initial months with your company.

7. You can increase the value of your company by 30 percent with only a 10 percent increase in customer retention levels. (Salesforce)

Your company leaders work tirelessly for years with a goal to reach a $90 million valuation. Your friend Larry, the VP of Sales, chases deals day and night to make it happen. But you’re still sitting at a value of $70 million. You, being the leader keenly focused on customer service, jump in to help. You shift focus back to your customers and increase customer retention by 10 percent. Suddenly, that $70 million value jumps up 30 percent and you surpass your goal. Now, you’re sitting tall with a $91 million price tag.

Investing in customer acquisition is important, sure, but the impact of improved customer retention efforts proves even bigger to your bottom line.

Grow your bottom line by hanging on to your customers. Click to find out how > A Guide to Losing Customers (And How to Avoid Bad Customer Service)