Is It Better to Spend Money on Acquiring New Customers or Spend Money on Retaining Old Customers?
I’m always mystified by small businesses that spend money on local ads in newspapers, coupon mailings, and other local publications of one type or another that encourage advertising by local merchants.
Don’t get me wrong. I am a big believer in advertising. It’s just that customer retention should come first.
There are two common rules that the experts tout and retailers and restaurants are aware of.
80% of your business comes from previous customers.
It also costs five times more to acquire a new customer than it costs to retain an old customer.
Spending money on some sort of coupon mailing can be very helpful in obtaining new customers. However, if you turn off customers by arguing over the small print in your coupons and ignoring them when they enter your business, you are wasting your money.
You need to make sure that every customer entering your business is properly served. This includes all of your old customers as well as all of your new customers.
When growing my businesses, I use a combination of advertising to new customers as well as always keeping in contact with previous customers.
If I send out a mailing to new customers advertising my business, I also send out that same mailing to present customers. Not once. Not twice, I send out 4 mailings to present customers for every 1 that I sends out seeking new customers.
It’s far less expensive to keep in touch with your present customers. Present customers are far more likely to respond to your mailings (or other forms of contact such as email, texts, Facebook, etc.) as those new customers you are seeking.
As a matter of fact, I find that present customers respond five times more often (or higher) than those who I contact that have never done business with me before.
According to Our Social Times, 70% of companies say it’s cheaper to retain a customer than it is to acquire a new customer.
Most smaller retail businesses and single owner restaurants have no customer retention strategies.
Retention strategies should include:
Greeting all of your customers upon entering your business
Encouraging your customers to periodically visit your web page
Emailing to customers
Texting to customers
Having a Facebook page
Encouraging good reviews of your business
Allowing customers to meet owners and managers of your business
Hiring the best employees you can afford (and paying them well for their services)
…and the list goes on…
I have always found that spending money on retaining customers is far more cost efficient than spending your money on acquiring new customers.
However, once you have a customer retention policy in place, then your ready to figure out new ways to obtain new customers.
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