Sometimes, it’s so easy to get caught up in the process of converting new customers that you forget that your best customers are sitting right in front of you.
They are your existing customers. You’ve already won them over with your products. But did you also know that keeping customers loyal comes with a wealth of benefits?
It’s easier to convince them to buy products from you again, and the longer they stay with you, the greater their lifetime value becomes. In addition, once you’ve built a solid relationship with your existing customers, they’ll refer their friends. So, they’ll become powerful advocates who can bring new customers your way!
Let’s dive further into why keeping existing customers is as important, if not more important, than obtaining new customers for your business.
Your existing customers are more likely to spend more on your products
Satisfying your customers helps you build a large, reliable customer base. And strengthens the pool of customers you can count on to repeatedly purchase from you. By having satisfied customers, you’re also paving the way for offline marketing to happen – like word of mouth and referrals.
When your existing customers are satisfied, they’re more likely to buy from you again. So, it’s far more cost-effective to persuade existing customers to make a repeat purchase than it is to acquire a new customer (think of the money you don’t have to spend on ads as well as the time it takes to find people in your niche).
These compelling stats show just how valuable it is to maintain your customer base:
- 65% of your sales will come from existing customers. (Small Business Trends)
- The probability of selling to an existing customer is 60%-70%. Meanwhile, the probability of getting a prospective customer to buy products from you for the first time is only 5% to 20%. So, you’re at least 40% more likely to convince an existing customer to buy from you again than you are to convert a prospective customer. (Neil Patel)
- Compared to new and prospective customers, existing customers are 50% more likely to try out your new products. (Neil Patel)
- 80% of your future profits will come from just 20% of your existing customers. (Customer Thermometer)
- Repeat customers spend an average of 31% more than first-time customers. (Neil Patel)
Focusing on your existing customers helps keep your retention rate high
Retention rate is the percentage of customers who have remained with your company over a period of time. (The opposite of retention rate is churn rate, which shows the percentage of customers you have lost over a given time).
For example, if you started the year with 1000 customers, and then found out that 800 of those customers remained your customers at the end of the year, your customer retention rate for the year is 80% and your churn rate is 20%.
Higher retention rate is directly connected with higher profits. After all, as the Harvard Business Review explains, “you don’t have to spend time and resources going out and finding a new client — you just have to keep the one you have happy.”
According to Destination CRM, increasing your customer retention rate by just 2% has the same effect on profits as cutting costs by 10%. And, as Customer Thermometer reports, increasing your customer retention rate by 5% can increase your company profits by 25% to 125%.
Retaining existing customers increases their lifetime value
Lifetime value measures the total profit contribution that a customer has brought to your business. The longer someone remains your loyal customer, the greater their lifetime value.
Customers with high lifetime value are extremely important to your business’ success because their purchases are not counteracted by acquisition costs.
A new customer who spends the same amount of money on products as your average existing customer doesn’t bring nearly as much profit as the existing customer, because you must account for the one-time costs to acquire that new customer.
- It’s between 5 times and 25 times more expensive to acquire a new customer than to retain and satisfy an existing customer. (Harvard Business Review)
- It’s 16 times more expensive to bring a new customer up to the same level as a current loyal customer. (Small Business Trends)
If your acquisition costs are greater than your average customer’s lifetime value, you could be losing money, and you will need to rethink your marketing strategy. But the more customers you retain, the higher your average customer lifetime value becomes, leading to more profits.
You can calculate your average customer lifetime value with this basic formula:
Average annual profit contribution by a customer
(X) The average number of years that someone remains a customer
( – ) the initial cost of customer acquisition for each customer
For example, say your average length of customer retention is three years;
Customers spend $500 a year on your products, on average;
and it costs you $800 to acquire a new customer.
This means you could be losing money.
Your average customer’s lifetime value is $100 less than your acquisition costs.
But what if your average length of customer retention becomes 4 years (assuming that your acquisition cost and the average amount customers spend both stay the same)?
That’s $400 more than it costs for you to acquire each new customer.
Increasing your average customer lifetime value makes all the difference! Thus, focus on building customer loyalty, so that you can increase customer’s lifetime value and reduce your acquisition costs.
Existing customers are great salespeople who can refer others to your business
Existing customer’s real lifetime value is even higher than the value of their repeated purchases. Your existing customers are your greatest advocates. If they’re happy with your products and pleased with your customer service, they’ll refer others to your business, authentically and naturally.
As Inmoment reports, 75% of loyal customers will refer their friends and family to your brand.
Loyal existing customer’s referrals come in a variety of forms, including:
- Word-of-mouth recommendations
- Social media posts and messages about your brand
- Positive comments and reviews, posted on public pages for anyone to see
- Messages from your brand’s referral programs
These recommendations are powerful tools that should never be underestimated. People trust referrals from their family, friends, and peers far more than they trust messaging that comes directly from your brand. It’s one of the many reasons why you need a referral program.
After all, they feel that the people they know are least likely to mislead them. Plus, when people make decisions about what to buy, they rely on these genuine referrals most, because they value personal experience— referrals come from people who have had real experiences with your brand.
- 83% of Americans say that word-of-mouth recommendations from friends or family members make them more likely to purchase that product or service. (Referral Rock)
- According to a Nielsen survey, 90% of people trust recommendations from friends, family, and peers they know over other sources.
- 88% of people trust online reviews written by other consumers as much as they trust recommendations from people they know. (BrightLocal)
- 72% of consumers will take some sort of action after reading a positive review. (Referral Rock)
In addition, your existing customers’ recommendations can reduce your marketing costs even further. After all, their referrals come naturally, at absolutely no cost to your business! Prioritize your existing customer’s experience, and new customers will end up rolling in for free. You won’t need to spend nearly as much money on new customer acquisition!
Most crucially, new customers who were referred by an existing customer already have a positive impression of your brand, since their trusted friend, family member or peer gave your brand the thumbs up.
So, they are more likely to become loyal, lasting customers. In fact, the average lifetime value of referred customers amounts to 16% more than the value of other customers. And best of all? Referred customers are more likely to keep the cycle going, and refer their friends to you.
Your existing customers are your best customers because they are more likely to spend more on your products; because they keep your retention rate strong; because their lifetime value keeps increasing with every consecutive year they stay loyal; and because they are likely to refer others to your brand. All of these factors help you spend less on customer acquisition. So focus more of your time, money, and energy on retaining your existing customer base!
Now that you’ve seen how valuable your existing customers are to your business, make sure to prioritize building a relationship with your customers, increase customer satisfaction and loyalty, and to build a robust referral program to make it easy for existing customers to share their positive experiences!