Why Mention Retention? Keeping customers is good business

Imagine your business is a tugboat. Now imagine your boat has a leak. While the boat captain would consider any leak a big problem, many companies accept attrition levels as high as 10-15% as natural and inevitable. This is crazy talk. Customer retention has the highest ROI of all marketing & loyalty programs and contributes to a number of strategic benefits.

Basic assumption #1: it’s cheaper to retain a customer than acquire a new one.

Acquisition Costs, 2010 Retail Insurance Wholeseller

• Acquiring new customers can cost five times more than satisfying and retaining current customers 1. Let’s face it, its easier to reach your existing customers than convince new ones to sign up. The example above is from an insurance provider who underwrites for various companies who private label their policies

Basic Assumption #2: Loyal customers are more profitable

• For many companies, the ROI on a new customer is 12 -18 months including acquisition and service related costs to setting up the customer relationship. Attrition before 1-2 years turns the ROI on acquisition negative.

• A 2% increase in customer retention has the same effect on profits as cutting costs by 10% 2. As important as it is to reduce expenses, one simply cannot grow value indefinitely through cost reductions – especially if the cuts impair the product value proposition and lead to increased attrition.
• Customer profitability tends to increase over the life of a retained customer. Many businesses are able to deepen their relationship and profit margin with customers over time by increasing the product penetration and reducing servicing costs.

Basic Assumption #3: Customer Loyalty is a strategic asset
On the strategic side, customer loyalty has several powerful advantages:
• Maintain market share: most customers are taking their business elsewhere, strengthening your competitors while it weakens you
• Encourages Customer Feedback: loyal customers are more willing to give feedback rich with candid assessments that help to identify and prioritize investments in service and process improvements.
• Acquisition $s are for growth: Companies with high customer attrition can spend the majority of their acquisition investment just to keep pace, effectively investing to stand still.

So next time you catch yourself accepting customer attrition as natural or acceptable, take another look. Attrition is the kind of leak that can sink ships.

Sources
1. "Leading on the Edge of Chaos", Emmett C. Murphy and Mark A. Murphy
2 American Association for Quality, 2011

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