70% of companies say it’s cheaper to retain a customer than acquire one

We've long argued that customer retention is undervalued and should be prioritised over customer acquisition. Thanks to this report, we can prove it.

customer retention statistics

We’ve long argued that customer retention is undervalued and should be prioritised over customer acquisition. Thanks to a new report, we have the statistics to back up our beliefs.

econsultancy have published a preview of their Cross-channel Marketing Report 2013 today. Their post included some compelling statistics for those (like us) who believe that customer retention is undervalued and that, especially in a social media environment, can deliver a higher ROI than acquisition marketing.

Most companies don’t seem to value their existing customers anywhere near as much as new customers. The headline statistics give an indication of the scale of the problem:

  • 30% of companies say they are ‘very committed’ to relationship marketing
  • 46% say they are committed ‘to a certain extent’
  • 22% say they don’t do any relationship marketing

Helpfully, they also provide a list of the top reasons why companies don’t engage in relationship marketing. These are fairly typical of the reasons why companies don’t do many things: 22% cite “lack of resources”, 19% “not clearly defined strategy”, 13% “technology limitations” and 10% “lack of single customer view“. It seems amazing that lots of companies still don’t have the know-how to create a single view of each customer – but it’s a fact.

Perhaps the most fascinating statistics (see graph below) relate to the apparent understanding among companies that customer retention is both cheaper than customer acquisition and can deliver a higher ROI. Apparently, 70% of companies say it’s cheaper to retain a customer than acquire one and 49% say that, pound for pound, they achieve better ROI by investing in relationship marketing over acquisition marketing.

customer retention statistics

This is a pretty astonishing finding when you look at the figures for marketing spend vs customer retention (customer service and CRM). There seems to be a collective ignoring of common sense  that is driving companies away from their existing customers and, instead, focusing their time, energy and budget on acquiring expensive new customers – even when they know that costs will be higher and ROI lower.

I’d love to hear from any organisations that have taken the opposite view and backed it up with a budget and strategy to match. Referrals and suggestions welcome.

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  1. Martin Hill-Wilson Reply

    It’s all down to siloed planning that sees time in one year slices. Bonkers given how long the underlying maths have been known for. The need for One Agenda has never been stronger.

    1. Luke Brynley-Jones Reply

      Quite. It’s amazing that these stats are still news really, but I’m yet to find a better example of companies knowing one thing and doing precisely another.

  2. PhilWhomes Reply

    Good to see some up to date research to support the old adage. It’s not quite as clear cut as the figures suggest – ipsos published some work in 2005 (link is long, so google ‘ipsos retention acquire’) which urges caution and suggests there are other factors to be considered. However, the advance in social media over the last 8 years and its contribution towards customer retention probably means that their work needs revisiting anyway. How organisations take life time value into acquisition ROI calculations also needs to be defined.

    As for the ‘lack of single customer view’, I believe this figure to be higher. While many companies may think that they have a decent SCV system, I’m not sure that they all really cover all of the multichannel touch-points.

    I am still not convinced that social media ROI can be measured accurately enough to compare with other campaign expenditure – but I am more than willing to be convinced!

    1. Luke Brynley-Jones Reply

      Thanks for your input Phil. You’re certainly right that it’s never as black and white as we might like to think. I’ll take a look at the Ipsos survey. Our experience, at least, indicates that positive customer interactions on social media can impact significantly on customer retention and value. It also compares very favourably to, for example, PPC advertising ROI.

  3. PhilWhomes Reply

    I have no doubt at all that social media (done properly!) has an extremely positive impact on customer retention. I just get a bit nervous when attempts are made to measure social media ROI to the last £1. Maybe that’s one of the issues in the acquisition v retention quandary, it’s easy to justify acquisition campaign costs to a board, as you can show the exact ROI, retention methods including social media aren’t so quantifiable.

  4. Locksmith in Orland Park Reply

    Totally agree. The problem is that as the management staffs development expectations enhances, it gets more difficult to obtain more customers. As a result, customer acquisition expenses rise and the quality of customers, in terms of the duration they stick around, declines.

  5. Joe McFadden Reply

    There is no denying it’s cheaper to retain than acquire customers. But where does most of the money really go? In order to grow you need to attract new customers, but you can’t just take someone’s money and call it a day and expect them to stick around forever. There needs to be some kind of balance.

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  8. Bruce in Ohio Reply

    Just left Verizon after 12 years. Looking to upgrade my phones and plan. Saw they were offering big incentives to get new customers, but much less to get me to upgrade. Asked why? Someone in “Retention” told me that they get new revenue with a new customer and so they are just using that new revenue to pay for the incentive.
    Hmmmm. So they consider revenue from existing customers to be guaranteed and unavailable. I am not under a contract but would do an equipment contract for new equipment.
    I was asked what it would take to get me to stay. I said an additional $100 on a new phone. I was told they could not do that. So, I switched and called to make sure my billing was adjusted and cancelled, and they said ‘we want to do what we can to keep you.’ I said it’s too late, I already switched. They said it didn’t matter that we could work something out. I told them that after a while when they considered me a ‘new customer’ I’d check back and see what incentives they would be able to offer me.