How much is a “pound” of retention worth?
Customer success is a challenge in almost every industry
Almost every industry faces the challenge of acquiring and then retaining customers. The cost of acquiring a new customer typically wipes out much or all of the profit from the first year. In some industries it is not until the third or fourth year of renewed membership that a company begins to make a profit.
Sales v. Retention. Is it a tradeoff?
So why then do many of us put such a premium on the “sale” i.e., getting new customers? Why do we put less resources towards retention? Retaining a customer, whether you are in professional services, health & fitness, insurance, or many other industries is simply not as glamorous as finding new ones (perhaps it is a desire to be hunters instead of farmers).
The challenge of customer attrition is not just the lost revenue. There is also the challenge of “churn” i.e., a departure of customers. These departing customers might leave a wake of negative opinions with your other customers or on social media.
There is also the complexity of your client base turning over every two to three years. Old customers leave and are replaced by new ones. The new ones might have a very different set of needs and a very different buying pattern.
Customer churn is expensive.
Business owners might find they need to reposition themselves and their products in the market to meet the new need – that can be expensive and complex. Health club owners might find after two years the underlying population of members has shifted to a different demographic. Insurance carriers might find that due to turnover within a company (or lack of turnover), the group that they are insuring looks very different than when they originally did the underwriting.
Customer success requires balance.
For all of these reasons, business owners and managers need to shift the scale to create balance between customer acquisition and retention. Exhibit 1 shows a simple framework for thinking about customer acquisition and retention – the price to acquire a customer and retain a customer is either “high” or “low.” As a business owner, I understand the temptation to focus on clients that have both a low acquisition and retention cost. But that is a limited view.
We must invest in the acquisition and retention of our clients proportional to the lifetime value of that client.