One of the first things you’ll likely learn when you start researching business is how expensive it can be to get a new customer. Traditional advertising and customer acquisition are known to be extremely expensive, and many companies spend millions of dollars trying to get new customers and retain their existing ones.
However, understanding the fact that it’s cheaper to retain customers than to get new ones can be different from understanding why and recognizing ways you can reduce that cost. Here’s what you need to know as a business owner about reducing costs and improving retention.
Why is customer cost and retention so important?
Pretty much everyone knows the bare minimum: it’s more expensive to find a new customer than it is to retain an existing one. However, retaining your customers can also improve your profit. According to Fred Reichheld of Bain & Company, a 5% increase in customer retention in the financial services industry results in over a 25% increase in profit. That’s without doing anything else to bring in new customers.
Additionally, the process through which you retain your customers can also have a prominent impact on things like your brand identity, which in turn impacts your ROI. If you gain a general reputation for putting your customers first and caring about their experience, then you’ll find more people interested in buying from your company.
As a business, you’re always looking for ways to cut costs so you can increase profits. If you can cut costs and improve your company brand at the same time, then why wouldn’t you?
Reducing customer acquisition costs
The life cycle of a customer starts with your customer acquisition costs. There are many potential channels for marketing: running ads in traditional media, running digital ads, paid product placement, paid sponsorships, affiliate marketing, and many more. While it’s typically a good idea to broaden your horizons and use multiple different advertising channels, there are some channels that may bring in customers in a more cost-effective way.
Affiliate marketing is one of those options. Here are a few of the reasons that affiliate marketing can be so cost-effective:
- You don’t have to make any advertising payments until someone actually makes a purchase. In most types of advertising, you pay for a period of time or for a certain number of views, but in affiliate marketing, you only pay for sales. This is low-risk and high-reward.
- Affiliate marketing relies on a potential customer’s trust in a specific individual. They may be more interested in checking out a product because a celebrity or influencer they really trust endorses the product.
- Affiliate marketing ensures that your advertising only meets the eyes of people who might be interested. Many people use affiliate links in review posts and similar content, which means that the people looking at the links are already interested in making a purchase.
It’s also important that your affiliate marketing program treats its affiliates well in turn. Affiliates are less likely to continue to work for you if you don’t track their sales well, you pay in a late fashion, or you don’t communicate with affiliates regularly. A tool like Refersion can help you manage your affiliates more easily, both to make things easier for your affiliates and to help you home in on how you can improve your affiliate marketing program.
Increasing customer lifetime value
Now that you’ve onboarded a customer, what’s next? You need to make sure that the customer stays with you for a long time. The more purchases a customer makes with you, the better. There are endless ways that a company tries to increase their customers’ lifetime value: high-quality customer service, loyalty programs, strong return programs, and brand image management, to name a few.
Of these, return programs are one of the more underutilized, which is a shame because they can be incredibly beneficial to your company. Here are a few ways return programs can help your company:
- Your customers have a better experience overall with your company, even when they don’t enjoy a product. Returns and exchanges are like poison to many companies because they take money out of your pocket. If you prove that you’re willing to support a customer even when they don’t like an item, then they’re more likely to recommend your product.
- You can automate returns, allowing customers to start the return process on their own time. This opens up more return options, giving your customers a better experience.
- A better returns system gives you more insight into why your customers might be returning items. This allows you to correct the problem before you ever send something out, reducing returns in the future.
Customer lifetime value is exactly what Loop manages. Loop understands that exchanges lead to more referrals and more repeat customers and does everything possible to make the return process easy and lead the return process into exchange processes instead. Once you get that customer, Loop makes it easier for you to keep them.
The best customer: low-cost, high-ROI
You want your customers to be as cost-effective to onboard as possible, then to stay with your company, making new purchases, for as long as possible. The best customer is one that’s low-cost but also pays into your company as much as you can. By using Refersion and Loop in tandem, you can find customers more effectively, then keep them coming back for more again and again.
Would you like to learn more about Refersion? Check out their site.