News & Opinions
The latest news and insights from Hanley Wood’s outspoken experts and key thought-leaders throughout the residential and commercial design and construction industry.
Sales Get the Glory but Retention Gets the Gold
Christopher J. Bucholtz / CRM Buyer / August 2, 2013
A salesperson at a software company is going to be celebrated internally and rewarded financially for landing a new 10,000-seat customer. How much reward goes to the team that keeps five or eight or 10 similarly sized customers happy, satisfied and contributing to the bottom line for another year? Not much. They’re just doing their jobs, or so some would say.
If you want glamour, status and prestige within your company, go out and get new customers. If you want to stay in business, specialize in keeping the ones you have happy and loyal.
Customer retention isn’t flashy, and it doesn’t earn extra pats on the back from executives or big promotions — which is a shame, because it’s usually more profitable over the long term than hauling in new accounts.
It can be a lot more profitable. Acquiring a new customer is six to seven times more costly than retaining a customer, according to Frederick Reichheld of Bain & Company.
Hanging on to customers is hugely profitable. A business that retained all of its customers for just one additional month could achieve an additional 3 percent of annual growth, according to Karl Stark and Bill Stewart of research firm Avondale. Retaining its customer base for four additional months could create double-digit growth without the need to acquire a single new customer.
The Long Game
Despite the reality of retention, most businesses don’t emphasize it.
About 29 percent of respondents to a March 2013 study by MarketingCharts couldn’t quantify their spending in terms of acquisition vs. retention, and 28 percent said the split was 50-50.
However, 37.3 percent said that the majority of their marketing budgets went to acquisition, while only 5.7 percent said the majority of their budgets were geared toward retention.