Marketing Budgets: Retention Versus Acquisition

Andre Smith

The challenge of gaining new customers without losing any of your loyal customers is one of the most difficult things to achieve. According to Forbes, your company’s profitability can increase up to 75% with only a five percent increase in customer retention. Statistics also show that 20% of a company’s existing customers will provide 80% of its future revenue. Further, local merchants reported that over 70% of their 2015 revenue came from return customers.

Unfortunately, many companies’ marketing budgets don’t reflect the reality behind these statistics. A research survey showed that 72% of small businesses planned to allocate most of their marketing budgets to new customer acquisition, while only 28% planned to allocate the majority to customer retention. One reason for this discrepancy between statistics and budget allocation is the fact that recruiting a new customer costs approximately five times more than keeping an existing customer.

Retention strategies

There are an increasing number of new companies, and more competition means that retaining clients is becoming more difficult. New companies offering promotional deals in an attempt to lure your customers away prove to be a powerful temptation for even the most loyal customer. Small business owners report that customer loyalty programs, social media advertising, and email marketing were among the most successful strategies for keeping satisfied customers.

A customer survey revealed that one of the top two reasons for following a business on a social media site was the opportunity to receive discounts. Rewarding your social media followers with sales specials created just for them can earn you not just brand loyalty, but new followers. People take pride in being smart shoppers and love telling their friends when they’ve succeeded in buying a quality item at a discount price.

Social media provides the opportunity to not just personalize the shopping experience, but actually develop personal relationships. An online forum can give your customers the opportunity to connect with each other, increasing the amount of time they spend on your site. Satisfied customers answering questions for potential new customers can prove to be the best representatives for your company. The process also provides you with valuable feedback on how to make their customer experience even better. Finally, you can identify your most loyal customers and reward them. Thank you emails containing discount coupon codes are just one idea.

Acquisition strategies

While automating some of your business processes can save you time and money, customer service shouldn’t be one of them. Customers want to communicate with real people, and that’s why live chat is such a powerful tool for cultivating new customers. Having an instant response to a question about a product from a real person in real time is the next best thing to communicating in person.

Communicating in person is one way to significantly reduce the cost of new customer acquisition. Host beneficiary marketing is partnering with established businesses to create a win-win marketing strategy that benefits both businesses while offering added value to customers. An article in Entrepreneur magazine points to an example in which a clothing store partnered with an auto dealer. The auto dealer sent its past customers a coupon for a free item of clothing worth approximately $20 from the clothing store as a form of customer appreciation. Six hundred customers redeemed their coupons, and each of them spent an average of $400 on other items during their visit to the store. The car dealership was able to express appreciation for its customers at no cost, and the clothing store was able to access a whole new market for a relatively small initial investment.

Host beneficiary marketing is a great way to form mutually beneficial relationships with other businesses in your local area. You can take advantage of the interpersonal power of meeting face to face by inviting a number of local business owners to a hosted event, such as a dinner or a formal cocktail party. Do note, however, that this needs to be handled professionally to prevent you from inadvertently looking bad. Organizing a gathering in a local pub is asking for problems. Loud music, seating problems, and interruptions from other patrons are highly likely. Instead, rent a space designed specifically for this kind of occasion with professional service at your disposal. Conferences for small groups of potential business associates and valued customers are also a great way to get the word out about new products and innovations while building personal relationships. In an age of increasing automation, strategies that increase human contact offer the most benefits, both personally and professionally.

For more on finding new business without damaging the old, see the infographic 4 Ways to Digitally Disrupt Your Business Without Destroying It.


About Andre Smith

Andre Smith is an Internet, marketing, and e-commerce specialist with several years of experience in the industry. He has watched as the world of online business has grown and adapted to new technologies, and he has made it his mission to help keep businesses informed and up to date.