By Legal Futures Associate Moneypenny
Many businesses overlook the value of repeat customers when growing their client base. Given that an average of 65% of a business’s revenue comes from repeat customers, customer retention has become critical to business success. It is one of the top priorities for business leaders across all sectors.
Understanding the customer levels of loyalty
There are several different customer types and various levels of customer loyalty. However, you need to be aware of two main types of customers: new customers and repeat customers. While the distinction between the two may seem straightforward, it’s still important to understand the nuances of each type.
What is a new customer?
A new customer is someone who is engaging with your business for the first time. Your marketing efforts may have drawn in them, generally have heard good things about you, or are simply unhappy with your competitors and looking for something better.
Whatever their reason for coming to you, new customers represent a fresh opportunity to impress. Their first experience with your business is make-or-break – it’ll either convince them to return or send them looking elsewhere.
What is a repeat customer?
Repeat customers are those who’ve already made a purchase and decided to return for more. They’ve made at least two purchases from your business and, chances are, liked what they saw the first time around. These customers know what to expect from you and trust your products or services enough to choose you over competitors.
The importance of customer retention
Customer retention is cheaper than acquisition.
Although acquisition is an essential first step in the customer journey, the cost of acquiring new customers can be as much as five times higher than the cost of retaining existing ones. Attracting new customers often takes time and significant investment due to the marketing and advertising efforts involved.
On the other hand, retention allows you to focus on clients who already know your business and want your services. Cross-selling and upselling are easier and much more cost-effective than finding and converting new customers.
Repeat customers are worth more to your business.
Returning customers are often more valuable than new ones because, on average, repeat customers spend 67% more on orders than new customers. They learn to know and trust your brand truly, and once familiar with your business and the quality of your offerings, they will purchase more over time. You can also count on them to be a more consistent source of revenue – something as small as a 5% increase in retention can boost profits by 25%.
Retention drives customer satisfaction – and referrals.
Retention and customer satisfaction go hand in hand. By focusing on client retention, you’ll create loyal customers who will happily sing your praises and promote your business. After all, the more satisfied customers are, the more likely they are to make referrals.
Returning customers spend more over time.
Research has also shown that repeat customers are not only more likely to purchase again, but they also do so more frequently and with higher average order values. Existing customers have a 60-70% chance of buying from you again, compared to just 5-20% for new customers. This increased spending doesn’t just impact your bottom line – it’s a sign of the strong relationship you’ve built with your customers.
Ready to improve customer retention? Our new CX playbook, “Retaining Customers and How to Unlock Growth,” provides the answers. Read our latest resource to learn more.
