The question of acquisition vs. retention is an old-age debate in the customer service circles.
What is more important, the acquisition of new clients, or the retention of the old ones?
Ideally, sales and marketing teams would like both to happen in equal measure, but in reality most companies deal with a finite amount of resources and need to take a call in certain situations where they have to prioritize either the existing clients or the new ones.
Customer acquisition is important – it is the metric of growth for many businesses and it provides the most effective way to realize the short-term goals.
However, retaining the right customers is arguably the more important thing to focus on, as it has its own short-term benefits and definite long-term benefits to go with it.
Keeping your customers is the most accurate metric to measure the quality of service – that is, companies that are doing very well will have loyal customers, and the ones which find their customers leaving will most likely be subject to poor service.
Retained customers are also easier to manage – they are familiar with how you work and would hence require less maintenance than the average new customer.
In this article, we will explore the virtues of keeping the right customers, how it compares against aggressively focusing on acquiring new customers, what sort of returns repeat customers can bring, the idea of customer lifetime value and the benefits to arise out of the move.
1. Retaining customers is cheaper.
Independent studies have found that it costs up to five times as much to acquire a new customer as it does to retain a previous one.
To get new customers, expensive marketing strategies have to be adopted; agent resources have to be spent in interacting and following up with the lead, followed by generating interest in the product, establishing their trust with the brand and then pushing for a sale.
On the other hand, an existing customer already knows about your company, has trust in the brand and has previously shown interest in your products, so all you have to do is identify their requirements and provide them good customer service, and they are far more likely to purchase your products down the line.
2. Loyal and happy customers purchase more.
No matter how great your marketing department is, and no matter how hard your agents try to convert leads to sales, a conversion ratio in excess of 20% is almost unheard of.
Companies convert anywhere between 5% to 20% of their leads when everyone is a new prospect.
In comparison, a current customer is up to 70% more likely to purchase again.
This is a significant difference, and can be the difference between you and your competitor.
If you can show value during a sale, it is very likely that the customer will buy again.
Customers that stay loyal end up purchasing more in the long run than a series of one-time buyers.
3. Organic promotion of your product.
Word of mouth is a powerful promotional tool.
It is not only free and easy to obtain if you maintain quality, it also has the most potent impact, since it is credible, people relate to it and the people promoting you seem to have nothing to gain out of it, making others think of their promotion as more genuine than the other forms.
Long-term customers are likely to promote your products within their networks, if they are happy with the usage of the products and the customer service that you have been providing.
This gives you exposure, further gets your name out there and puts a tag of credibility on your product.
4. Customer lifetime value.
This refers to a calculation of the total profit expected to be generated from a customer over a projected period of time in the future.
Loyal customers have a very high customer lifetime value, while one-time customers would fetch low numbers.
Calculating the customer lifetime value is an important element of business decisions, keeping in mind the vision for the long term, in terms of how valuable a client could be.
This prediction also shows that is far more profitable to provide service that makes customers stays on, rather than trying to replace the customers with new ones, in order to keep the sales cycle rolling.
5. Invested in better customer service.
Agents are more committed to providing a better quality of service when they know that the company prioritizes retention of existing customers.
It also helps the agents keep a track of their conversations.
When an agent is serving a customer for a long time, it makes his job easier, allows him to talk more freely and gives him the license to be a little informal if needed to be.
This drives up productivity because agents can skip the unnecessary layers of protocol laid down to allow the agents and customers to get to know each other.
There is better flow of operations, seamless sales conducted and a higher likelihood of revenue generation.
6. It is a driver of customer acquisition.
Strong rates of customer retention can serve as a driver of customer acquisition as well.
Loyal customers would provide referrals and testimonials for your company and your products.
Referrals would entice others to join in and reap the benefits.
Testimonials from the existing customers are a brilliant badge of credibility, since you get normal people to give your product a thumbs-up.
Others relate to such feedback more than paid advertising, and are led to believe in the value proposition that you want to highlight.
In this way, you get to acquire new customers as well, by focusing on your current customers.
It serves your benefits in both ways by ensuring loyalty and adding to your customer base at the same time.
7. More accurate budgetary decisions.
Loyal customers are more predictable than the unknown entities you have just acquired.
It is difficult to predict the behavior of new clients, which is why it becomes difficult to formulate a long-term plan and allocate resources on the basis of preempting their behavior.
If your company’s strength lies in its base of retained customers, you have a more accurate estimate of the fixed resources you would require in your budget, with an allowance for the variable budget which does not change the entire thing.
This lends stability to your operations and allows you to plan ahead in a more mathematically sound manner.
8. Easier to maintain.
As mentioned before, current customers are a lot easier to maintain than newly generated customers.
First of all, there is already an understanding between the customer and the company, courtesy of the sales that have already been made to him or her.
The retained customer knows how your company works, is convinced that you provide good service and is willing to give you the benefit of the doubt in a tough situation because of your history.
On the other hand, a new customer will justifiably ask more questions, raise more doubts and may even end up not being compatible. These factors influence the productivity of your company.
9. Far higher success rates.
Acquiring new customers is not only expensive, it is also far more of a risk.
Companies with the best agents, brilliant strategies, good marketing campaigns and good conversion rates would still be able to translate one if five or one in four leads to sales, at the best.
Success rates with retained customers are much higher, almost always remaining above 50% and going up to 70% with good quality of service.
Customer experience is a key factor in this.
A company that concentrates on delivering a good experience is going to see more success than a company that only promises a good experience to get more and more people to sign in.
10. Statistical advantages.
Most companies in the market still have a greater focus on acquiring new customers, because they think growing their customer base is the only way to grow as a company.
44% of companies claim that they have a greater focus on acquisition, while only 18% say so for retention, with the rest claiming they put equal weightage.
This is your company’s chance to establish a niche strategy, different from others in the market but obviously effective.
Increasing retention rates by 5% have been found to increase profits by a minimum of 25%, going up to over 50%.
Thus, not only do you have the trust of your customers, you have the numbers on your side too, to make the greater profits.
The Case Study
Just as acquisition requires careful consideration of the target audience demographics and other features, retention requires knowledge about the customers, previous interactions and their inclinations as well.
Companies employ call center software to find out the relevant information and utilize to better their quality of service.
For a company focused on retaining the right customers, it is important that they take the data-driven decisions on approaching every single customer to gain their trust and loyalty.
To understand how much of an impact keeping the right customers can have on the day to day workings of a call center, let us take the example of Baron Solutions, a telemarketing agency providing call center solutions for a large organization.
In this case study, we will take a look at the situation they were in, the problems they faced and the solutions they came up with, as well as the effect those changes had on the company’s operations and business.
The Problem Scenario
Baron Solutions had been losing customers rapidly over the past few years.
In a bid to replace their leaving customer with new acquisitions, the company was spending a lot of money on promotions and marketing budgets, which was impacting its growth.
They were looking for a solution which would allow them to keep hold of their customers for the long term growth.
The specific problems that the company faced are listed below.
1. Customers were not happy with the level of service provided, which is why they chose to leave despite a good product.
2. Agents were not able to personalize conversations because they did not have the technology to sort out the relevant information about a client.
3. The company saw a very low conversion rate of around 17%, which led to a shrinking of their customer base despite their best efforts.
4. They found it difficult to plan a budget amidst the uncertainty over their customers’ behavior and unpredictability of sales.
The Company came up with the following solutions to counter the challenges they faced:
1. The company brought in the best call center software which allowed them to build profiles of every customer and interact on a more personal level to gain their trust.
2. Customer service was given the topmost priority so that current customers chose to stay on for the longer run.
3. Budgetary allocations were made keeping the current customers in mind. This allowed them to focus more on these current clients and in turn convinced them to stay on.
After a year of the revised strategy of providing telemarketing software solutions, customer attrition rates were decreased by about 20% compared to the previous year.
Moreover, customers were reportedly happier with the service they received, which led to them praising the company in their own networks.
As more customers remained loyal, purchases increased as a whole, and the revenue generated through sales was up by over 25% for the next few years.
This allowed Baron Solutions to guide itself on to the top spot in the market, backed by their strategy to focus on keeping the customers with them.
As we can see, keeping the right customers requires concentrated effort, but it also boasts a number of benefits, including better sales and growth opportunities.
Using the right call center software solutions and the correct agents for the job, a company can successfully leverage its existing customer base to rise to the top.
Following the strategies given here will definitely help your company to grow, and retain its most profitable customers.