Customer Retention Should Outweigh Acquisition
Too many CMOs looking to increase their company’s bottom lines are quick to look “out there” for a solution. They focus their efforts on acquiring new customers and pouring a large chunk of their marketing budgets into advertising or public relations.
However, decades of research have shown that this method may not necessarily be the best route to take for improving sales and ROI. In fact, the numbers indicate quite the opposite: Instead of looking outside their companies to bring in new business, CMOs should turn their attention to the customers who are already within their grasp and find ways to generate more business out of them.
Consider this: According to the Gartner Group, 80 percent of your future profits will come from just 20 percent of your existing customers. That means the revenue sources you’ve been trying to find are most likely sitting right under your nose, waiting to be nurtured and cultivated.
Customer Retention Can Take Time to Bear Fruit
Frederick F. Reichheld and Phil Schefter of the Harvard Business School cited a study (conducted by Bain & Company, in coordination with Earl Sasser of HBS) analyzing the costs and revenues that came from serving customers over their whole purchasing life cycle.
They said: “We showed that in industry after industry, the high cost of acquiring customers renders many customer relationships unprofitable during their early years. Only in later years, when the cost of serving loyal customers falls and the volume of their purchases rises, do relationships generate big returns. The bottom line: Increasing customer retention rates by 5% increases profits by 25% to 95%.”