Why customer retention is equally as important as customer acquisition

  • On November 3, 2017
  • In blog

Why customer retention is equally as important as customer acquisition

Customer retention is important

Unlike notches on a bedpost, when it comes to relationships, real value comes from a meaningful, long term commitment. So it’s often surprising to me when brands and retailers continue to swipe right and spend hundreds of thousands of their marketing budgets on social media every month as part of an ongoing acquisition strategy opposed to focusing on customer retention.


Is romance dead?

Just like when finding a partner, constant expenditure on finding a new partner often leads to fleeting expensive exchanges. It is far more rewarding to invest time in the partner you already have, get to know them, understand what will make them happy and invest in them so they may invest back.

As romantic as this all sounds, it can be a bitter breakup when a brand does not fulfil expectations.


It’s about give and take

In the world of business, it is generally accepted that it can cost up to five times more to acquire a new customer (CAC, Customer Acquisition Cost) than to retain an existing one, with existing customers driving at least two thirds of your overall revenue.

Many companies also use the old 80/20 rule in these situations: 80% of budgets spent on acquisition, 80% of revenue coming from 20% of customers. The reality is there needs to be a balance between how customers are valued and engaged and between acquisition and retention.


Accept our differences

The problem seems to be most businesses focus on customer transactional value as opposed to the customer experience value. What we often see are lists of lapsed customers often larger than those of new/active customers. In reality, the definition of an active customer is usually time dependant. Not taking into account non-purchasing behaviour. For instance, who is more active; a customer who bought 3 years ago but visits the site at least once every couple of months or a customer who bought a year ago but has only been back to the site once since the purchase?

LTV (Customer Lifetime Value) is a metric used but ultimately not valued. Imagine if you will, spending all day with the kids, sorting out the house, maybe even preparing some food for the evening, only for your partner to come home trapped in their work mind set and not appreciating all you have done that day. It’s a new world and I know a couple of guys who suffer this, likewise LTV, a metric that matters and is referenced by marketers but is not powering enough marketing decisions. The focus seems to remain at getting people into the funnel without enough effort being spent on creating that loyalty loop.

Customer segmentation and understanding your different customers is a great exercise for every transactional business.


Shut up and listen

Finally, communication is key to finding balance in any successful relationship and it’s no different when finding balance between CAC and LTV. Understanding what drives customer decisions and how they interact with your brand should drive retention strategy as much as acquisition.

Simply sending information, be it emails, push notifications, SMS, display, catalogues, batch & blast DM is not enough anymore. Businesses need to stop and listen to their customers, to structure an effective acquisition and retention strategy. Making use of personalisation and relevance in marketing communications makes an exponential difference.


Fly some Paperplanes

If you’d like to know more about how Paperplanes can help you personalise marketing communications through Programmatic Direct Mail, get in touch with us today.


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