Keep Your Current Customers
By Dan Cremons
By Dan Cremons: https://www.linkedin.com/in/dancremons
Despite the indisputable economic importance of keeping your current customers, you should know this: Only 16 percent of companies report being more focused on keeping existing customers than acquiring new ones.
As glamorous as impressive new customer wins may feel, prioritiz- ing customer acquisition over customer retention is backward for a few important reasons:
❖ Retaining current customers is significantly less expensive than getting new ones. Acquiring a new customer can be anywhere from 5x to 25x more expensive than retaining an existing one. After you’ve done the hard work and made the substantial invest- ment to acquire a new customer, the cost of losing them—not to mention having to replace them with an expensive-to-acquire new customer—can be considerable.
❖ Selling those customers more stuff is also way less expen- sive and more likely. One of the benefits of keeping customers is being able to sell them more stuff (which we’ll discuss in the section on customer expansion). Loyal current customers are already familiar with what you offer, so they’re both cheaper to advertise to than new customers (about 4x so according to Bos- ton Consulting Group) and more likely to purchase.
❖ Loyal repeat customers are more likely to refer you to their friends. Loyal customers can be your most productive and cost-effective sales channel. As Chip Bell, one of the founding fathers of the customer journey movement, said, “Loyal custom- ers, they don’t just come back, they don’t simply recommend you, they insist that their friends do business with you.”
Even slight improvements in retention can mean significant increases in profits.
Greater retention means greater revenue, more cost-effective marketing and service, higher lifetime value, greater upsell opportunities, and more referrals. Thanks to the combined effect of these factors, economically, even a five percent increase in annualized retention rate can increase profits by a whopping 25–95 percent over an investor’s hold period. It’s just math.
Model this out, and you’ll be amazed at how sensitive most return models are to even small changes in retention over a private equity hold period.
When we consider these facts and account for the second-order consequences of losing customers—for example, the fact that every cus- tomer lost to a competitor only strengthens that competitor’s position in the market—it builds a pretty bulletproof case for the importance of retaining customers.
At the end of the day, it is way less expensive and more valuable to retain your current customers and sell them more stuff than it is to acquire new ones.
For this reason, our deep dive into revenue growth starts here.
As Brian Balfour, CEO of Reforge and former VP of Growth at HubSpot, said,
“If your retention is poor, then nothing else matters.”
So to understand how to plug those costly holes at the bottom of your company’s leaky bucket, it is important to understand why churn hap- pens. There are a handful of common causes of churn in B2B businesses:
❖ You’re targeting the wrong customers.
❖ Your customers aren’t achieving their desired outcomes or gener-
ating the expected ROI—whether because of onboarding issues,
product issues, changing business priorities, etc.
❖ You aren’t anticipating and getting ahead of customer issues
before they happen.
❖ Your customers experience poor service and support, leading
to frustration and weak ROI on the product or service they pur-
chased.
❖ Your marketing strategy is way more focused on getting new
customers (acquisition marketing) than keeping current ones (through engagement and retention marketing).
❖ Your customers go out of business, get acquired, or churn due to other natural causes beyond your control.
In the pages that follow, I share proven winning moves—pulled straight from the playbooks of successful investor-backed companies—to help you avoid these pitfalls and capture the riches and success that come by way of strong customer retention. Think of these winning moves like Flex Seal—that watertight wonder-sealant you’ve no doubt seen on late-night infomercials—for your company’s leaky bucket.
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Sebastian Amieva
Investor / M&A Expert / Mentor
www.sebastianamieva.com
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