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What is Customer Retention?

Jacob Brain


We’ve shared with you customer retention strategies you must have, the statistics you need to know, design tips and more in recent posts.  Now it’s time to go back to the basics and be reminded of what customer retention really is and what it can do for your business.

Our definition: customer retention is a company’s ability to retain a customer’s spend and affinity to your product or service.  Customer retention is important simply because long-term customers tend to spend more, cost less per transaction and give meaningful references to potential customers. All three of these factors equal higher revenue, at a better margin, for your company.

Many businesses don’t understand the importance of focusing on keeping their existing customers and some even regularly practice ways to drive customers away.  Instead, they think that the more customers they acquire or sell, the more profitable they’ll be.  There are several issues with this “Gross Profit” of thinking.  As each quarter passes, goals will get higher and management expectations increase meaning that each quarter the number of new customers goes up and the tyranny of the urgency requires management to do everything it takes to support this growth.  Unfortunately, as goals increase, the infrastructure needs typically increase too since they will need additional resources to acquire more people.  Costs go up, and the cycle starts off just needing sales to sustain a bloated infrastructure. If this sounds like your business, ask yourself these questions:

  • What is your average customer lifespan? How does that compare to your competition?
  • What is your cost of acquisition per customer? (think about direct and indirect costs) How many transactions do you need before you see a really strong profit?
  • Do the answers to the two previous questions align?
  • How much will it cost to keep your existing customers for one more sale? And how much pure revenue and profit would you create by doing so?

The fact of the matter is that several reports say that it can cost 6-7 times more to acquire a new customer than it does to retain an existing customer and existing customers spend much more than new customers. Therefore, we can bet that it will be much more beneficial to keep your existing customers.  So, are you doing what it takes to keep your customers?

Customer retention starts the second that someone comes in contact with your company.  Make sure you and your employees know what it takes to keep your customers and that your processes and procedures are designed to support your strategies

For more information about retention, be sure to contact us at 240.575.5887.

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