Companies Reward Acquisition over Retention

The structure of most businesses is set up to reward the acquisition of new customers. 

In most businesses, the “stars” are the employees who bring in new clients, not the employees who keep clients happy after the sale.

The number of resources devoted to marketing and sales are enormous compared to those directed toward customer experience (Client success and Product experience). 

The 2017 edition of the annual CMO Survey (conducted by the Fuqua School of Business at Duke University, Deloitte LLP, and the American Marketing Association) found that the average business spends 6.9 percent of total company revenue on marketing—and yet less than one fifth of that total spending is dedicated to customer experience activities.

Take a look at the illustration of the customer life cycle below:

Most businesses spend all of their time on the left side of the graphic. They try to increase the prospect’s awareness and knowledge of their brand, and then move the prospect to consider the offerings before the customer finally tries or selects/purchases the product or service.

This is the focus on marketing and sales efforts that is commonplace in business today.

Losing a customer costs a business in far more ways than direct revenue. 

  1. First, there are the sunk costs spent on acquisition that will never be recovered.

  2. Second, for every lost customer, overall profits decrease. 

  3. Third, without solid customer retention, sustaining a business is nearly impossible. 

  4. Fourth, every time a customer leaves, team morale suffers. 

A 5% improvement in customer retention rates will yield a 25% to 10% increase in profits.

By keeping more customers, and reducing the money spent on customer acquisition, the marketing and sales people might not be too happy, but actual profits will increase by 25 to 100 percent.

This has been proven time and time again, in a variety of industries.

Now ask yourself the following questions: 

  • How big would your company be if you still did business with every customer you ever worked with in the past? 

  • If you never lost a customer, how much more money would you save? 

  • How much more money would you keep as profit? 

  • How much faster would your company grow?

Let me know your opinion in the comments below. Would love to discuss and answer any questions.

Thank you!