The Value of An Existing Customer

Brandi Ruddick

Brandi Ruddick About The Author

Feb 21, 2022 8:00:00 AM

 

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Focusing on your relationships with existing customers is far more profitable than acquiring new leads. Not only do they have a proven interest in your products and services, but you already have their contact information, some understanding of their interests, and brand recognition.

In fact, according to statistics collected by OutboundEngine, "Acquiring a new customer can cost five times more than retaining an existing customer. Increasing customer retention by 5% can increase profits from 25-95%." Those are powerful statistics.

While you may be focusing on growing your business to reach new markets, but forget about the existing customers who can help maintain your cash flow at a fraction of the marketing costs. Keep reading to gain a deeper understanding of the value of an existing customer.

Learn How to Effectively Measure Your ROI

What Does It Cost to Acquire a New Customer?

CAC, or the customer acquisition costs, is one of the most important numbers that your marketing teams — and everyone in leadership in your revenue departments — need to know. You can determine your company's basic CAC by dividing all of your marketing costs in a set time by all of the newly acquired customers in that same period. While this rough estimate helps plan your strategies and budgets, it doesn't provide the whole picture.

Some confounding variables could be:

  • Customers that have a long conversion cycle or a cycle that transverse two different periods you're measuring.
  • Existing customers that are swept up in your marketing efforts but don't count as new acquisitions.
  • Different customer types. For example, if you sell electronics, the number of marketing dollars you'll spend on someone buying headphones can be very different from the amount you spend on someone wanting to buy a complete home entertainment system. 

Start with a basic estimate, and then determine the CAC for different buyer personas. You can invest in software that helps you find those fundamental numbers, or you can work with marketing partners that know how to find them.

What Is the Value of Returning Customers?

We already know that a returning customer making the same purchase as a new customer is far more valuable in sheer acquisition costs. While the revenue may be the same, the profits are drastically different because you're putting less money and effort into winning over the return customer. However, the value of returning customers goes much deeper than that.

Repeat Customers Spend more than First-Time Customers

According to Bain and Company, "In apparel, the average repeat customer spent 67 percent more in months 31-36 of his or her shopping relationship than in months zero-to-six. And in groceries, customers spent 23 percent more in months 31-36 than in months zero-to-six."

As customers become more familiar with your products and services, they'll trust their quality more. This results in more significant cart values, more transactions, and growing confidence in your brand. Over time, repeat customers' lifetime value (LTV) will far outstrip the goals you can reach by focusing solely on new markets.

Positive Reviews and Word-of-Mouth Marketing

According to Nielsen, "Customers are 77 percent more likely to buy a new product when learning about it from family and friends."

Repeat customers are far more likely to become brand ambassadors than one-time customers. Their continued confidence in your brand will speak volumes to their circle of contacts and anyone who sees their reviews. This further boosts your profitability.

Retention Lowers Costs

According to Leading on the Edge of Chaos, "A two percent increase in [customer] retention has the same effect as decreasing costs by 10 percent."

This statistic has exciting implications for all of your organization's departments. After all, retaining customers isn't just about marketing efforts. Good customer service, quick resolution to problems, and reducing negative interactions reduce costs, customer churn, and, ultimately, increase the LTV and profitability of each customer.

Why You Should Be Marketing to Existing Customers

Marketing to new audiences and prospective leads is how you grow your business and scale-up. However, marketing to existing customers is how you maintain cash flow, create a strong foundation for your business, and build a robust brand reputation for good service and customer retention.

Failing to market to them isn't just a missed opportunity; it's a drastic misstep. Repeat customers are your most powerful asset for keeping marketing costs low, getting excellent reviews and testimonials and acquiring loyal new customers through word-of-mouth marketing.

Partner With Arizona’s Family Keep Up With All of Your Market Segments

Now that you know you need to include repeat customers in your marketing campaigns, it's time to create specific strategies designed just for these shoppers. Coupons, tailored offers, and email marketing efforts can help you stay top-of-mind and in the good graces of your customer base. At Arizona’s Family we're here to help you create a comprehensive plan for reaching and engaging with your repeat shoppers season after season.

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Topics: Strategic Planning & Research