Why It’s Easier To Retain Current Customers Than Acquire New Ones

In marketing, the focus is more or less always on acquiring new customers. It’s by far the most appealing and seductive route to higher sales or profits. But unless your company is just starting out, your current customers may actually contain more untapped potential than theoretical new ones. It is far easier, for various reasons, to squeeze more value out of customers you already have than it is to go out and find more.

Here’s why:

Acquisition Costs

As you likely know, acquiring a customer for the first time is rarely cheap. Whether you use search engine marketing, cold calls or direct mail, there is a “toll” which must be paid to bring new prospects into your sales funnel. Chances are, if you track each marketing campaign and know your numbers, you have the cost of new customer acquisition down to an exact science.

Being able to systematically generate new business on demand is a tremendous skill, and certainly nothing to make light of. However, it’s much cheaper selling over and over to customers you already sold to once than persuading brand new people to buy for the first time.

Pre-Existing Loyalty

(Nanagyei)

Another reason it’s easier to retain existing customers is that they are already loyal to your company. Having bought from you at least one time before, they are already in agreement with your company’s unique selling proposition (USP), organizational philosophy and “niche” in the marketplace. That doesn’t mean existing customers don’t need to be reminded of all of these things. They do – because everyone eventually forgets. But it does mean (usually) that you don’t need to convince them from square one to make a second or third purchase.

Think about your favorite take-out restaurant in town. It helps to be “nudged” by getting fliers in the mail or seeing TV commercials for their food, but the reason you buy over and over again is because you did before and know that they’re good. The same principle applies, roughly, to your existing customers.

Referrals

(visual.dichotomy)

Nurturing your existing customers is also the surest way to increase word-of-mouth referrals. Think about it: tips from friends or relatives on where to buy something are always more convincing and believable than advertising. The company has a vested interest. “Of course they’re going to say their own stuff is good,” your prospects say to themselves. Word-of-mouth referrals, on the other hand, are seen as innocent and objective – because the person referring you has no selfish motives.

That’s why serving your existing customers needs to be a high priority. In his article Getting & Keeping Customers, Perry Marshall writes that companies with poor customer service “only know how to replace angry customers with ignorant ones.” This, he continues, is “very dumb, and very expensive.” Keep your current customers happy and you will get new ones.

Back-End Sales & Lifetime Value

(House Of Sims)

Savvy business owners know that the real money lies not in the first sale, but in progressive up-sells, cross-sells (products sold to already existing customers), and back-end offers (products sold to past customers by contacting them directly) to the same customers. The total revenue generated from a single customer is known as the lifetime value of that customer. As a Harvard Business School webpage explains:

“Customer lifetime value (CLTV) is a formula that helps a marketing manager arrive at the dollar value associated with the long-term relationship with any given customer, revealing just how much a customer relationship is worth over a period of time.”

The same webpage offers a handy calculator that any business owner can use to determine the CLTV of a customer. The idea behind up-selling is to always have higher-priced products to sell to existing customers so that their CLTV is pushed higher and higher.

Market Value Of Your Business

It’s been said that the most valuable asset a company possesses is not its buildings, employees or intellectual property, but its customer list. And it’s certainly a defensible position to take. A truly savvy entrepreneur, stripped of his or her entire infrastructure, could conceivably rebuild from scratch with only a list of proven buyers.

Interestingly, potential acquirers will also assess your company’s market value by taking your customer list into account. Should you ever choose to sell your business, it will help immensely if you can point to a well-maintained customer list and express exactly how much your existing customers are worth in dollars.