It costs five times as much to attract a new customer than to keep an existing one, which is why customer retention is so vital to any business. By retaining customers and building loyal relationships with them, you can decrease customer acquisition costs. Yet despite these facts, only 18 percent of companies focus more of their efforts on retention than acquisition, while only 40 percent report having an equal focus on acquisition and retention. I can personally attest to these stats through my experience as a consultant, where I see an inordinate amount of resources (time, money, effort) spent on the latest and greatest advertising techniques, from click funnels to Facebook and Google ads, while little or no thought is given to how current customers are being nurtured.
If you’re not yet convinced that you need to invest in a robust customer retention strategy, consider the following:
- Increase Revenue: Investing more in customer retention and less in acquisition can provide the opportunity to generate a significant amount of revenue. According to Gartner, approximately 80 percent of future revenue comes from just 20 percent of existing customers. This is because existing customers are easier to sell to. In fact, the likelihood of converting an existing customer to buy again is 60-70 percent, while the likelihood of converting a new prospect to buy is only 5-20 percent. The simple formula is: the more customers you retain, the more money you will have available to spend on acquiring new ones.
- Decrease Costs: It has been estimated that it costs 4 to 10 times moreto acquire a new customer than it does to keep an existing one. What’s more, compared to new customers, existing customers are a lot less expensive to service, which means their maintenance costs are much lower.
Now That You’re Convinced…
Contact center professionals LOVE metrics, and for good reason! After all, you can’t improve what you don’t measure, and contact center success is all about improving. With that in mind, here are some of the best KPIs for measuring customer retention.
- Customer Churn: Although some customer attrition is natural, if your annual churn rate is greater than 5-7 percent, your product or service is most likely failing to meet your customers’ expectations or helping them achieve their business goals.
- Revenue Churn: Like customer churn, some revenue churn is normal. That said, it’s important that it isn’t trending downward, as revenue churn is a critical indicator of customer health and satisfaction. This measurement is particularly critical for companies whose revenue growth and retention are supported by a subscription or retainer model.
- Existing Customer Revenue Growth: A stagnant or falling rate indicates that your existing customer accounts aren’t growing, which means you probably aren’t spending enough time and budget on customer retention and may be failing to capitalize on easily tapped revenue sources.
- Net Promoter Score: While indicating whether your customers are content and willing to refer your products or services to others, your Net Promoter Score can be analyzed next to your revenue growth rate and customer churn rate in order to form correlations to help predict potential growth through customer retention and referrals.
- Repeat Purchase Rate (RPR): A good indicator of customer loyalty, RPR can be used to understand which types of customers are making the most repeat purchases. Based on this data, you can adjust your marketing efforts to be more efficient and effective.
- Days Sales Outstanding: If it’s taking customers a long time to pay their bills, this can be an indicator of their commitment to maintaining a healthy working relationship with your business. Consider DSO as a whole in order to identify trending behaviors, as well as on an individual basis; a lengthy DSO could mean your customer is dissatisfied with your company’s product or service
It’s obviously imperative that your company allocates time and resources to customer retention, and some common contact center KPIs can help you determine where there might be room for improvement. If customer retention strategy seems at all overwhelming, please contact me directly. I have helped clients of all sizes design and implement comprehensive customer retention plans to help them successfully improve retention in order to increase revenues and decrease costs.
