Ever wonder where you should focus business resources when it comes to the cost of acquiring new customers vs. retaining customers? It's a trick question, according to Ali Cudby, who is CEO of Your Iconic Brand, a marketing firm based in Indianapolis, Indiana that works with clients to improve customer retention. “It's never either/or," says Cudby, who is also author of the upcoming book Keep Your Customers and adjunct professor of entrepreneurship at Purdue University. Rather, she says, both need to be priorities.
And yet, she frequently sees business owners putting their time, energy and dollars into the cost of acquiring new customers vs. retaining customers. “New customers are sexy in a lot of ways. They're easier to mark the before and the after," she says. With customer retention efforts, however, results can be more gray than black and white. “Once a customer comes on board, it's harder to attribute the success or failure of the customer relationship to one single person, because now you have all these different parts of the organization impacting that customer's experience," says Cudby.
In her work, and in her upcoming book, Cudby is quick to inform businesses that customer retention is incredibly important. For one thing, there are vastly different numbers associated with the cost of acquiring new customers vs. retaining customers “There's lots of different research out there. Most of the research shows that it costs between 6 to 7 times more to get a new customer vs. keeping the customers you already have," she says. Plus, satisfied customers don't just become repeat customers—they may also refer new business, either by word of mouth or through social media. “The power of referral is huge," says Cudby.
To help businesses understand the cost of acquiring new customer vs. retaining customers, and to answer questions such as what is customer acquisition and retention, Cudby shared the following insights.
Customer Acquisition Marketing: How It Works
“Customer acquisition marketing is the process that companies go through to get a new customer in the door," says Cudby. This might be the result of a salesperson reaching out to new prospects, an effective marketing campaign or other types of outreach that resonates. “Most companies focus the bulk of their energy and resources on new customer acquisition," says Cudby. Acquiring customers is, of course, a necessary first step to building and maintaining an audience and contributing to business growth. Cudby refers to the sales teams that focus on acquiring new customers as “hunters," because it's their task to actively target and bring in new business.
Customer Retention Marketing: How It Works
“Customer retention marketing is focusing on your existing customers to make sure that they come back faster, spend more and refer like crazy," says Cudby. The team involved in customer retention could be a mix of many departments working together to provide excellent customer service. “In the experience economy, which is where we are today, it isn't just that people want to spend their money on experiences like vacations. They want all of their experiences as customers to be great," says Cudby. It's important that businesses are customer-centric across the organization, and focus on building relationships with customers, long-term. If they're able to do that, they could see some impressive results, she says. “If you can improve retention by just 5 percent, profitability has been shown to grow by anywhere between 25 and 95 percent," says Cudby. “A small change creates a huge impact." Cudby refers to the team that focuses on customer retention as “farmers," because it's their task to nurture the relationships and help them grow.
Customer Retention and Customer Acquisition: Using Both Models to Maximize Engagement
Once you understand more about the cost of acquiring new customers vs. retaining customers, it's time to consider the right approach for your business and create consistency internally. Cudby says to do that, when it comes to customer retention vs. customer acquisition, businesses must first understand what their own process is. “Most of the companies I work with start by looking at their own internal processes and realizing that there's miscommunication and inconsistency inside their own organization. So before they figure out how they want to talk to customers, they all need to get on the same page," she says.
Once a customer comes on board, it's harder to attribute the success or failure of the customer relationship to one single person, because now you have all these different parts of the organization impacting that customer's experience.
—Ali Cudby, CEO, Your Iconic Brand
Then, she says, business leaders can start figuring out where their company is headed and develop a process that ensures everyone within the business is working consistently towards the same goal; that the work is being tracked and measured; and that there are celebrations along the way. “Ultimately, people inside the company are human just like customers are human, and when you can celebrate the wins inside your company, you're going to get more internal connection to the company's goals," she says.
As you think about the cost of acquiring new customers vs. retaining customers, you might want to revise it to replace the “vs." with “and," because both areas are vital to company growth—you need both your hunters and your farmers. If a business looks at new customers simply as a means to a transaction rather than courting a long-term relationship, they're leaving a lot on the table. “It's kind of like a new bride who spends all of her time thinking about the wedding and forgets to think about the marriage," says Cudby.
Photo: Getty Images