Stop trying to find new customers.
Sales & Marketing focus on obtaining a new customers
To often in business we focus on garnering a new client or customer. Even to the exclusion of retaining an existing customer.
The marketing and advertising dollars are focused significantly on the new customer market.
Countless studies (in Australia and internationally) show that the cost of a new customer vs. retaining an existing customer is somewhere between 6 and 20 times more expensive. Retention of our existing customers needs to be given a much higher priority that often it is in business.
The sales people are excited by the thrill of the chase, so they want to always deal with new customers. Probably a lot of businesses incentive systems for their sales people focus on new business also. Whilst in business we need to grow there needs to be a balance also in the focus on retaining new customers.
Customer retention affects business profitability.
In the insurance industry it was determined that if insurance clients could be retained one more year, that it would increase the profit by 75%. I am sure that this is the case in a lot businesses, that if customer retention can be increased, then the bottom line impact will be extremely positive.
The example that we could look at for this is the motor vehicle industry. Lexus put a extraordinary amount of effort in to retaining their current customers and internationally they have by far the highest repurchase rate of any vehicle. This is superior to any of the European marquees; Mercedes Benz, BMW, etc and also to the other brands within the Toyota stable as well. It is through the focus of the after sales service that Lexus has been able to have such a high retention rate.
This means that Lexus gets greater revenue during the lifetime of that relationship with the customer and also gains greater new sales from the customer.
The Rate of Customer Churn must be reduced.
So how do we address the churn rate; and that is firstly focussing on the after sales service. It is also focussing on how to constantly maintain contact and impress the customer to ensure that they keep coming back.
Lexus know exactly what a customer is worth to them during the lifetime and what it costs to obtain a new customer vs. selling another product to their existing customer base.
- Do you know in your business what the churn is costing you?
- Do you know what the lifetime value of a customer is?
- Do you know what is the average length of time a customer deals with you?
These are important numbers because a small improvement will lead to a large improvement in the bottom line.
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Great points. And there’s another: not only are existing clients cheaper to attract/retain, they are often your best source of new referrals.