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RETENTION = REVENUE. Why retention is greater than acquisition.

Updated: Oct 22, 2021

Retention is by far the most underrated growth channel and yet can make massive money moves for your business. While there tends to be a showdown between acquisition vs. retention (and yes, both are important for your business), let’s talk about why retention is greater than acquisition.

Most companies tend to put all their energy towards acquiring new customers because it’s a quick and effective way to increase revenue and grow business. However, believe it or not, customer retention is actually a faster way to increase your revenue and costs up to 7 times less than customer acquisition.

Val Geisler, a pro e-mail marketing strategist and conversion copywriter for SaaS and online businesses, and CEO at Fix My Churn, talks about the importance of turning “the customers you’ve already attracted into customers for life” at the CXL Institute.

Through her ample experience, she says “companies that shift their focus to customer retention find it to be more fact, retention is a more sustainable business model, and it's key to sustainable growth.” Ah! Sustainability - the ability to maintain growth - that’s what we all want!

A study done by Bain & Company (the creator of the Net Promoter score) said that increasing customer retention by 5% can lead to an increase in profits by 25-95%. Did your jaw just drop a little? Because mine sure did when I heard that statistic. A small increase can have a massive impact! Here’s a little more for ya...

“The likelihood of converting an existing customer into a repeat customer is 60 to 70%, while the probability of converting a new lead is 5 to 20% at best.”

Boom bam there ya have it. Building relationships with your customers is so important and it’s so much easier to retain those customers once you have a solid foundation with them. Think about how simple that energy output is as opposed to hunting, attracting, educating, and trying to convert new clients.

Numbers Are Everything

Measuring your retention can be a little difficult but numbers are everything and the proof is in pudding (aka numbers), and the numbers become a trend showing you what works and what didn’t work. That trend grows your business.

There are 2 ways you can benchmark your retention - against yourself, and against your competitors. The only issue with benchmarking against the competition is getting their data which typically is not available to the public. Measuring against yourself week to week, month to month, is called retention analysis and this is where you find out if you’re #trending.

Here’s how you can calculate your own retention rate:

If you notice your retention starts to go down, you should be concerned and try to isolate what made that happen. What was the cause? On the other side, if you notice your retention rate is increasing (yay go you), you might want to isolate what changed? What marketing campaigns were just released? What new customer behaviors led to that growth? Once you know the cause, you can really hone in and do more of what works so you can continue to increase that retention and REVENUE.

Here are some numbers for you to get an idea of what the average 8 week retention rate looks like and what to strive for:

  • For more industries the retention rate is below 20%

  • For products in media or finance the retention rate is over 25% (and considered elite - over 25% is elite).

  • For SaaS and e-commerce, over 35% is considered elite.

Getting To Know Your People

You will never know where you could improve, what your customers’ needs are or how you can help them, if you never ask them directly. 50% of your customers have a complaint and never voice it. By giving them the opportunity to voice their complaint, you get to truly know your customers.

The best way to do that is talking to your customers and interviewing them early on. It is not a product interview based on your service or product. It’s not about YOU, it’s about THEM. Get to really know them from the beginning - what they do, and what makes them tick. Talk about their business, what are they missing, what do they need (again this can have nothing to do with your product or service - you are getting to know THEM). This is a customer interview, not a product interview. It is not a sales call where you pitch them, you are building that rapport from the get go.

Here’s some ideas on how to get the conversation flowing:

  • What pains exist in your customer’s day?

  • What causes those pains?

  • How are those pains currently solved (if they are solved at all)?

  • What events or situations led up to the problem you want to solve?

  • How do people decide to solve that problem right now?

  • What’s still not working about the existing solutions?

  • Are enough people motivated to solve this pain?

  • What common events or situations trigger this pain point?

  • What online groups are they a part of?

  • What’s their workflow like?

  • What projects are they currently working on?

The Takeaway

The average retention rate drops within the first week. Your job is to not let that happen by building a strong foundation from the beginning and providing a wonderful onboarding process. After getting to know your people, it’s always a great idea to segment them because we all know, we are different and we want to be catered to. You will want to message each segment in the way that best suits them for retention optimization.

Your goal and the very best thing you want to do is to get your customers to rely on your product or service. Find that aha moment, the wow moment, the moment they use your product or service more than once. Once you have that aha moment, that’s when your customer really sees the value from your product or service and that is the pivotal moment! That is when you are adding value to their lives, that’s when they start telling their family and friends, that’s when blog posts start to get written about you...that's what you’re looking for. That is retention. That is increasing your revenue. That is why retention > acquisition.


Need help with Digital Marketing? Here at McMillan & Phillips we have a team of experts to make all your brand growth a reality. Reach out todayand let’s start optimizing your website and ultimately, your brand!

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