Companies are investing more in customer retention strategies in order to improve their bottom line. Using marketing dollars to increase sales from already existing customers makes sense in today’s challenging environment. Not only do existing customers generate significant revenue, but they also serve as a valuable referral base and are less sensitive to prices than potential new customers. Another significant boost to the bottom line is that marketing campaigns and programs focused on your current client base are, on average, five times more profitable than dollars spent on new customer acquisition initiatives.
Across industries, best-in-class organizations are using customer retention as a strategy to prosper and grow in this challenging economy. Historically, in any industry, the top five companies have a 93%-95% customer retention rate with 20% of the customer base generating 80% of the revenue. Trend analyses reveal that high customer retention rates positively correlate with high profits. The findings consistently show that keeping customers year after year leads to greater numbers of purchases per customer, higher rates of referrals (especially of customers less likely to defect) and lower customer acquisition costs.
Key Point – Understanding what your customer retention rates mean can help you improve organizational profitability. Do you consider customer retention rates in your plans to increase profitability for your organization?