There’s a longstanding battle in the business world: should ccustomer acquisition be the driving motivation behind business growth, or is customer retention more deserving?
While acquisition focuses on recruiting new clients, retention refers to long-term, repeat customers a business retains. According to Business Dictionary, retention statistics are more important to a business “since satisfied, retained clients tend to spend more, cost less, and make valuable references to new potential customers.”
Many in the construction industry see retention as futile: your customers won’t have another project for years, right? Not true. It’s been proven: retaining clients is a more lucrative path to long-lasting success. Yet client retention hasn’t quite earned its place in the driver’s seat just yet.
Where efforts are spent
A 2014 study from Econsultancy shared that less than half of the companies surveyed split their time and resources equally between acquisition and retention efforts. For the half not dividing time equally, the majority of their efforts were spent on acquisition.
Our advice to you: weigh the benefits of retention to see if your efforts would be better spent cultivating and nurturing the relationships you’ve already invested in. (We’ll bet they are.) To help you along, we’ll discuss those benefits now.
Work smarter, not harder
Consider this: it costs five times more to get a new customer than it does to earn repeat business or a referral out of an existing customer.
That cost is spent on lead generation, marketing campaigns, advertising solutions, proposal creation and more — all activities that require significant time commitment and energy from your staff.
While that’s going on, your current client base — the low-hanging fruit, if you will — is already in your wheelhouse, waiting to be connected with. Want to work smarter? Focus on nurturing those clients, and bettering their experience.
Increase profits faster
Retention can increase profits more quickly that acquisition efforts. Let’s explore: we’ll say that Henry is a contractor selling insulation services. For the sake of simple illustration, we’ll say each of the services costs $1000.
Here’s the breakdown:
- Acquisition: $200
- General/Administrative: $100
- Service: $500
- Profit margin: $200
At that rate, he’ll need to sell 1,000 retrofits this year to hit $200,000 in profits. However, if he were to sell additional retrofits at the same rate to existing clients or to customers who come off referrals from existing clients, he could eliminate the $200 acquisition cost to see a $400 profit margin. This would effectively slash the amount of sales needed to make his $200,000 profit goal in half, and he’ll see the added bonus of decreased general and administrative costs along the way. Remember: existing customers and referrals from happy customers take less time to quote and require less on the administrative side as they are already comfortable with you as their contractor.
Get more from your employees’ time
When the focus shifts from acquisition to retention and referrals, it doesn’t necessarily mean less time needed from staff — what it does mean is a reallocation of where that time is spent and in turn, a change in how profits are made.
The greatest shift will be in the time — and therefore money — spent on sales and marketing, at least in the traditional sense. Once retention and referrals are the drivers, efforts must be placed on perfecting each touchpoint with the client, adding up to an ideal customer experience, and then developing the best marketing methods to keep them buying at that increased profit margin or referring new customers.
Decrease time spent quoting new clients
What it also means is that the time you’ve put in upfront to court the customer, generate a proposal, and set up a contract will go much further. If you can simplify that process and vastly improve the customer experience in the first place — with an app like JobFLEX that allows you to generate professional proposals on-site or the same day — the proposal and onboarding process will pay off in spades.
Earn referrals with little effort
This is perhaps our favorite happy side effect of focusing more effort on retention and referrals, and that’s how client retention can organically grow acquisition.
Nurturing loyal customers will naturally drive word-of-mouth referrals, online reviews, and other customer-generated marketing. As the lowest cost of driving new business, why not put some simple things in place to take advantage of it?
Have patience, grasshopper
A couple important notes to consider as you shift your strategy from acquisition to marketing:
- If you’re a small company or still in the early stages of your business, it’s wise to stay focused on acquisition. Until you have a steady client base that you can focus on retaining, work on building up a base of ideal clients.
- Don’t eliminate acquisition entirely. Strike a healthy balance that capitalizes on the returns of retention and referrals, but doesn’t dry up the pipeline of new customers.
And finally, remember this: have patience. You might see immediate results from a lead-gen or advertising campaign, but building trust and loyalty takes time. Once the foundation is there, you can capitalize on it for months, years, even decades to come as those clients continue buying from you.
How are you going to put retention and referrals in the front seat in the coming months?
