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Customer Retention: The #1 Source of Missed Revenue

Customer Retention: The #1 Source of Missed Revenue

As an entrepreneur, you work hard to market your business, yet many entrepreneurs mistakenly view marketing in a narrow and limited way. Yes, a large aspect of it is to find new prospects, but that’s not the whole pic­ture. Marketing should equally target customer retention, because if it doesn’t, you’ll be missing out on a top source of revenue.

Customer retention is one of the most overlooked aspects of business because we typically assume that growth means adding new customers. In reality, your existing customers represent a significant opportunity.

In the early years of the SaaS business model, before people in Silicon Valley had a term for how we software was deployed to customers, business owners knew intuitively that customer retention could change the trajectory of a business. Today, there are statistics to prove the necessity of customer retention.

Retaining Customers Costs Less and Brings in More

According to Harvard Business Review, it’s typically 5 to 25 times more expensive to acquire a new customer than it is to keep one you already have. In other words, if you have to spend $50 to convince a fresh prospect to buy from you, while you may only need to spend $10 to convince a previous customer to buy from you again. If you do the math on the profit potential of both scenarios, you should get pretty excited about what this could mean for your business. The profit you gain from a repeat customer is so much greater.

Whether you are a startup entrepreneur or have reached a point where your marketing budget has a great deal of freedom, engaging current and previous customers to do business with your company again has the potential to be lucrative.

How lucrative? Well, according to a study done by Frederick Reichheld of Bain & Company, a five percent increase in customer retention can mean an overall increase in profit ranging from 25 to 95 percent. That’s how powerful retention is. Capitalizing on the loyalty of customers you already have has the potential to greatly increase your overall profit and benefit your business in a greater way than marketing to a new group of people.

In reality, every aspect of your business plays a role in customer retention in some way, not just the marketing department. In light of this fact, do not discount marketing altogether as it can help lead the charge for retention on internal and external levels. Your retention efforts might include the following:

  • Relentlessly pursuing product quality. If what you sell is unimpressive, cus­tomers are likely to look elsewhere for something better.
  • Committing to customer service. If a customer has a problem, solving it quickly and efficiently can boost loyalty to the brand.
  • Staying connected. Ongoing e-mail marketing and social media activity keeps your brand fresh in customers’ minds, so they think of you the next time they need a product like yours.
  • Talking to customers directly. Asking customers about their experiences can give you key insights and has the added bonus of making customers feel like their voice matters.
  • Building a business model geared toward retention. The SaaS model is clearly built for retention, but every industry has the opportunity to resell to customers. If your business idea involves a one-time purchase and a one-time purchase only, you should rethink the depth of your target opportunity.

Retaining customers takes deliberate effort. The fiercely loyal army of Apple fans was no accident. If you need to pick one part of your marketing to improve, start with retention and work backward until you reach the expo­sure level of the sales funnel. When your customer retention efforts are effec­tive, every customer you bring in the door suddenly becomes much more valuable.


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by Troy R. Underwood // Troy R. Underwood is an industry disruptor. Part technologist, part economist, and all innovator, he revolutionized the motor vehicle industry with the nation’s first electronic title system for financial institutions, which was later sold for $106 million. His healthcare venture, benefitsCONNECT, innovated healthcare benefits administration and resulted in a highly successful acquisition. His new book is How to Launch Your Side Hustle: Start and Scale a Business with Minimal Capital. Learn more at troyrunderwood.com.

Opinions expressed by contributors are their own.