1. Improve ROI
The Harvard Business Review reports that research shows increasing customer retention rates by 5% increases profits by 25-95%. While that’s a wide range, it shows that even just a small percentage of improved customer retention can make a hugely positive impact on your company’s ROI. On the other side of the table, HBR also reports that it’s five to 25 times more expensive to acquire a new customer than it is to retain an existing one. You can save money and improve your ROI simply by focusing more on customer retention.
2. Convert more sales
It’s easier to sell more to existing customers because the truth is—they already love your product. They already have a rapport with your company and are more likely to spend more on additional features to enhance their already pleasurable experience. An improved customer retention rate results in more sales with a focus on upselling. Your company can offer existing customers additional features or upgrades as an attempt to make a more profitable sale.
3. Spend less on TOFU marketing
From email marketing to social media, a business' marketing team usually focuses on attracting new customers. But, when we add customer retention to the mix, the marketing strategy changes. When you focus on customer retention, you can spend less money on top of funnel marketing and focus more on building stronger customer relationships.
This is not to say you should forgo traditional marketing methods. Instead, supplement these methods with tactics that ensure customer expectations are met on the product level. The bonus? You'll unlock the power of word-of-mouth marketing from happy customer referrals that feed back into your acquisition strategy. All without making a single cold call.
4. Increase customer LTV
The better your retention strategy, the higher your customer lifetime value (LTV). For reference, LTV is the amount of money a customer is expected to spend on your products during their lifetime. If you have a solid retention strategy in place, then your customer LTV will skyrocket. The goal is to spend as little as possible on acquisition and gain more via LTV. This happens when you focus on retention.
5. Earn more referrals
Loyal long-term customers are more likely to refer their friends and acquaintances to your business. Voluntary referrals are the best free acquisition strategies out there. When a customer has been with your company for a while and enjoys the experience, they are more likely to recommend your products to someone else. This social proof does most of the "sales" work for your company. When retention becomes a priority, acquisition happens naturally.