Do you have a good understanding of how retention marketing plays into your overall marketing budget for the year? Everyone knows they should have a budget, but many struggle with determining the budget that should be allocated. We believe that at least 15% of your marketing budget should be dedicated to customer retention. These data from Lee Resources Inc. support our beliefs:
Attracting new customers will cost your company 5 times more than keeping an existing customer.
If you have a 6/1 ratio of spend to results, your budget should be allocated the same in the least possible measure. If you have a 500K marketing budget for the year, you should be spending at least 75K directly on retention marketing efforts, if not more. We’ve worked with organizations that spend considerably more than 15% (subscriptions should be more like 50%), and also some that could not find a way to make it a stand alone portion of their budget at all.
Additional Thoughts
Don’t make the mistake of looking at your customer service budget as your retention budget. Customer service is a cost of entry to the marketplace. Without it you’d be out of business. You can look at the marketing aspect, or proactive aspects of the customer service workflows as part of that budget. But in our case, the 15% is directly related to retention marketing efforts.
Customer loyalty is not retention. The budget for your loyalty program is something of its own. It borders both retention and acquisition and should be kept healthy on its own budgets. A retention budget should be focused on win-back, churn reduction, or orientation. Not on loyalty programs.
Once a budget is accounted for, a strategy should be put into place. If you are working to establish a budget, a proper strategy should help you determine the overall needs for that budget.
