Acquiring new customers is important, but retaining them is more profitable. In order for a business to survive, it needs money. To make money, you need customers. More specifically, you need happy and loyal customers. If your business focuses on customer satisfaction, it is more likely to keep these customers happy and returning.
Gaining a new customer is similar to making a new friend, as it is exciting and rewarding. Just because you’ve made a new friend, you wouldn’t ignore your old friends. The same applies with customers. The long-term customers add more value in the long run, than newer/single-deal customers. So, if we can keep a larger percentage of the long-term customers happy, we end up with more profitable and predictable customers.
The type of customers you want
The repeat/long-haul customers:
- Are loyal and satisfied
- Perhaps make multiple purchases/ continue to use your product
- Talk about your product/brand
- Would recommend your brand/product to a friend
Why these customers?
1. It is cheaper: A study from Invesp found that it costs five times as much to acquire a new customer than keep an existing customer.
2. Loyal customers purchase more: Current customers are up to 60-70% more likely to purchase again. Whereas, 5-20% of new prospects are likely to purchase. Big difference! By showing value to your current customers after their first purchase, they’ll likely follow up, giving you repeat business from customers who trust your brand/service.
3. Promotion of your product: Long-haul customers usually promote your product to friends and those in their network. After all, they have been using it for some time. Word of mouth is one of the most credible forms of advertising, not to mention, it is free!
4. More profitable in the long-term: By simply understanding your most valued customers, and providing exceptional service and support, you will help one another to thrive. (the more a long-haul purchases, the more they grow, thus more demand).
To put things into perspective, according to a study by 1Financial Training services, 96% of unhappy customers don’t complain, however 91% of those will simply leave and never come back. This means that knowing how your customers feel, is of great importance. How can you help if you don’t have a clue how unsatisfied they may be?
What is churn rate and why is it important?
To put it simply, customer that have churned are those who have cut ties/stopped using a product or company.
The reason why churn rate is so important, is because it measures the wellbeing of a business.
How do I measure churn rate?
Depending on the industry or product, churn rate is measured monthly, quarterly and/or yearly. This does differ for companies that price a product/service on a monthly/quarterly basis, such as SaaS companies, who need to check it more frequently.
As churn rate is the percentage of customers who end their relationship with your business at a certain point, calculating it, is fairly straightforward. There are multiple ways of calculating churn, however, the basic way, is to take the total number of customers who left your business in a certain period, and divide the total customers at the beginning of the period.
Example: Churn rate for month of April
April 1st: 6,000 current customers
April 30th: 5,490 current customers
Minus customers from start of the month and end of the month
6,000 – 5,490 = 51
Calculate churn rate: 510/6,000
Churn rate: 8.5%
The ideal churn rate is 5% or lower. So, if this example was a real churn rate, some drastic actions, to do with communication and onboarding would have to be taken, in order to reduce it, and keep valuable customers and improve customer satisfaction.
The bottom line
Of course, it’s important to acquire new customers, but the real value lies with the customers that you can provide value to, and who are valuable to you. By focusing on the value of these long-term customers, you’ll likely increase repeat sales, and build a customer base that you know and understand.
Natasha Hoke is the Marketing Manager at Upscope, the co-browsing customer support application. She enjoys content writing, anything tech related and design. Follow her on LinkedIn or Twitter to see more of her writing.