Which is Greater?
Updated: Nov 30, 2020
If you had to guess which revenue source is greater over a 3 year period between new customers or current customers, which would you choose?
If you said current customers, go ahead and pat yourself on the back because you are spot on! (In most cases). According to Forbes, acquiring a new customer can be 5x more expensive than retaining current customers. Now of course this statistic does not suggest that customer retention revenue is an exact science but rather it is the smart perspective to have on business longevity.
In order to forecast predicted revenue, it’s worth considering two key financial components to determine how much your customers are really worth to your business. First, the customer acquisition cost (CAC), how much does it cost your business to acquire a new customer? Second, what is your customer's lifetime value (CLV)? In order to find out the CAC and the CLV, it’s a matter of following the formulas below:
Customer Acquisition Cost (CAC):
= (cost of sales + cost of marketing) / (new customer’s acquired)
Customer Lifetime Value (CLV):
= (average value of a purchase) X (number of times the customer will buy each year) X (average length of the customer relationship in years)
Once you have identified your CAC and CLV you will have a better understanding for how much it costs you to acquire one new customer vs the value of retaining customers. You will notice that building customer relationships is a key to business sustainability. More specifically, market research shows that the average customer is a customer for roughly 2.5 years. Of course this answer is relative and is contingent upon the type of business and industry, but the truth is that loyal customers will cover your overhead and some.
So how do I engage with my current customers?
The good news is that there are tons of ways to engage with your customers, however, some work better from business to business. We went ahead and listed out a couple of different ways on how you can engage with your current customers.
Don’t Sell Just to Sell:
Do you have a friend or family member who always asks for money? They probably aren't your favorite person to talk to. Add a bragging tone and they become especially intolerable. That’s how salespeople can come across. No one particularly loves being sold to. Even more so, no one loves to hear from someone only when they’re asking for more money. So when it comes to retaining your customers, don’t always initiate conversations when it’s time to upsell. It’s in a company’s best interest to build rapport with their client base focusing on engagement, feedback, and valuable consultative conversations. Here are 10 tips on how to sell anything:
Make it about them.
Do your research before reaching out.
Build rapport first.
Define your buyer.
Contribute first, sell second.
Ask questions, and listen.
Be mindful of psychological quirks.
Approach them on their level.
Hit an emotional high point.
Remember, you're selling to a person.
Don’t forget- these are customers that have already interacted with your business before so you know a lot about them already. Be sure to use that information! You want to make sure that you are adding value in the interactions with your audience.
Utilize Email Campaigns:
Email Campaigns are an extremely effective resource. Not only can you segment your lists and send personable emails to each and every customer, but you can strategize different campaigns for different current events. Most often, emails will be used as the main communication source with current customers and should be deployed as not only a sales tool, but for important informational updates, feedback, surveys, and customer appreciation campaigns.
Depending on the organization’s industry, event planning can be a great way to build customer loyalty. This is especially true for non-profit organizations. Whether the goal of the event is to inform, celebrate the existing relationship with the customer, or to generate revenue- they are a great way to do something fun with your audience!
Social media is a great way to engage with your audience. Popular platforms like facebook, instagram, and twitter have millions of users. The real intent of social media is to socialize, not promote. For businesses, social media provides an opportunity to reach a large audience and hopefully sway them into buying their goods or services. However, like we mentioned earlier, people want to see different types of content, not just sales posts. Social media provides the tools and resources needed to create clever engagement opportunities for businesses to connect with their customers. A popular KPI we see in social media success is measuring engagement rates and conversations with their customers.
Ask questions, and a lot of them:
No matter how thoroughly you've researched your customer or prospect, there will be gaps in your knowledge, and you won't be able to help the buyer solve their issue(s) if you don't fully understand it. For this reason, it's critical to ask thoughtful questions during your conversations — and a lot of them.
Here are some examples sales trainers Rick Roberge and Sean McPheat advocate:
"How did this happen?"
"What are the most important features for you?"
"Has it always been this way?"
"How should this product make you feel?"
"Zero to death, where is solving this problem?"
"How is the issue impacting your organization/customers staff?"
"What are you currently doing to address the problem?"
"In a perfect world, what would you like to see happen with this?"
"Can you give me an example?"
Be curious. It's good to have a list of questions prepared as a jumping off point, but you don't have to stick to them if the conversation takes an unexpected turn. People like talking about themselves and their situations, so your genuine interest and curiosity will help them warm up to you.
After posing a question, fall silent and simply listen. Really hear what the buyer is saying, and don't just wait for your turn to speak. Then after they've finished their thought, communicate their message back to them, ask them to verify if you understood them correctly, and pose a question providing further clarification.
Congratulations — you just became an active listener!
Not only does careful listening help you get a grip on the problem, but it also makes the customer feel good. And if you truly tune in, they'll be more likely to return the favor when you have something to say.
Create a Customer Loyalty Program:
Giving back to the customer is a great way to show your appreciation for their business and can be a simple token of goodwill. Over the years, we have seen many businesses adapt some sort of customer loyalty program to entice their current customers to do business with them again in the near future. Not only will it drive up sales, but will also provide value to the customers by giving them better deals.
In an ideal world, it’s nice to grow your business through acquiring new customers and retaining current ones. But because we live in an imperfect world, it’s wise to hone in on what’s working and focus on continual improvement. In the scope of a business’s client base, its paramount to focus on building long lasting relationships for years to come along with acquiring new ones. Marketers follow the same golden rule we were all instilled upon growing up: treat others the way you want to be treated.
If you know someone who’s looking for help with boosting customer retention, Oak Street has the expertise to help. Fill out this form to receive a free consultation to determine next steps!