Customer retention is 5X cheaper than new acquisitions, but is it worth it?

I’m going to start by sharing something that you have probably heard a hundred times before:

“Retaining customers is cheaper than acquiring new ones.”

Depending on the industry, there are varying stats and case studies that show acquisition to be 7-13% costlier than customer retention. For businesses in the e-commerce category, retention is 5X cheaper than acquisition.

But while businesses such as in the SaaS industry epitomize the idea, retention is not very convincing for the crowded e-commerce sector. The problem is that e-commerce businesses can’t bank on retention marketing with confidence at a time when online buyers are promiscuous to brands who offer them nicer deals, faster service, and better customer experience or support.

So why bother investing your time and energy on retaining volatile customers? Why not spray and pray to generate more leads for your brand and make the most out of a wide range of customer interactions?

The simple answer to both the questions above can be explained by churn. Think about it; the opposite of customer retention is not an acquisition—it’s churn. High churn is the bane of existence for all businesses regardless of what industry you are in. Customer retention helps you fight back churn because it helps you improve word-of-mouth advertising, stickiness towards your brand, customer loyalty, and more organic growth in the long-term.

In essence, retention is a network effect that leads you to a sustainable growth trajectory. Retaining your most favorable customers is the best survival skill your business needs to fight churn and defy all odds in the market.


Retention is the long-term survival strategy

Your customers are your friends—metaphorically speaking. And nothing explains the value of customer retention over new acquisitions better than friendship.

Answer this: are you better off having a small circle of friends you have since high school or would you rather spend time year-after-year trying to make new friends with everyone out there? If your goal is to develop a sustainable business, I presume you would go with the first choice. Sure, expanding your network of friends is great. In fact, it’s something that happens organically over time when your closest friends introduce you to their good friends. Often, the best kind of friendships daisy-chains from there.

I’m not saying that customer acquisition is a no-go all the time. In fact, Bynder ran a survey in 2017 among 562 marketers globally to conclude that 34% of brand marketers focused on customer acquisition as their topmost priority that year. But the acquisition is a relatively short-lived strategy that precedes retention chronologically. Acquiring new customers works best when expanding your business, such as when you want to generate more leads during your bootstrapping phase.

On the other hand, retention marketing is the best tool for businesses that have matured to a phase where a certain part of their revenue comes from a stable set of audience. For long-term sustenance, it’s better to build a more close-knit fan following you can manage and take good care of. You can nurture your relationship with them and build a formidable trust that usually evolves into brand advocacy.

In one of his articles Thousand True Fans, Kevin Kelly, founding editor of WIRED magazine and a tech-futurist, shares an interesting insight that favors this argument:

A thousand customers is a whole lot more feasible to aim for than a million fans. Millions of paying fans is not a realistic goal to shoot for, especially when you are starting out. But a thousand fans is doable. You might even be able to remember a thousand names. If you added one new true fan per day, it’d only take a few years to gain a thousand.

While his original advice was targeted more towards solo artists and creators, it’s equally relevant for e-commerce businesses who can apply this principle to maximize the profitability of each customer they can retain.

Identifying which stage your business is in is crucial, but it doesn’t hurt to have a customer retention strategy as part of your business vision right when you are starting out.

While customer acquisition relies on your marketing abilities to attract new audiences, customer retention is more about enriching the experience of existing customers, personalizing your services to their preferences, and providing them value over time.

Cultivating fulfilling friendships with your true customers is the best investment you can do for your business and e-commerce businesses are no exception. Good customer retention leads to brand stickiness and customer loyalty, the two gratifying metrics that every business wants to achieve.


How to retain customers in the competitive e-commerce market

In a lot of ways, investing in customer retention is like putting a fund aside for long-term financial success. But just like how new investors in their nascent years miss on the opportunities to invest in the right shares, it can be tricky for e-commerce businesses to identify the right kind of retention strategies for them.

But the stars will align in your favor if you can weave your customer service, customer engagement, and customer experience strategies into a cohesive bundle. Below, I zero in on some of the most important and tactical advice that you can use to improve customer retention for your e-commerce store.


1. Deliver exceptional customer service

Today’s online retail commerce is as diversified as the many peas in a pod; they all look the same and sell similar products. Outstanding customer service can be the only defining touchpoint for businesses that want to position themselves superior to their rivals. If you slack on the service department, you risk losing your gains.

58% of customers want to spend more on businesses that provide exceptional customer service. - American Express research Click To Tweet

In recent years, businesses have raised the bar on their customer service because customers now want faster response time and better support quality overall. This explains why a majority of businesses are increasingly using live chat as the primary channel to support customers instead of using phone or email, which are slow and context-deprived. Chat support surpasses the traditional channels of customer support by a huge margin because it’s instantaneous, friendly, contextual, and more feature-rich.

With capabilities like rich-media support, self-service content embedded inside the chat tool, and real-time language translation, live chat enables e-commerce businesses to offer the most “aha” moments to their customers.


2. Start loyalty programs

Loyalty programs are not just strategies to make your customers stay with your brand, they also help you shape customer behavior. For example, you can leverage the lure of loyalty or reward points for your e-commerce store if you want customers to perform certain actions, such as downloading your mobile app, creating an account with you, or referring your products to other people in their network.




You don’t need to complicate your loyalty program by overthinking it. Just start by rewarding customers for their second, or repeat purchases, and you will soon see a spike of customers who return to your store for more. Make sure you craft engaging in-product messaging to let customers know how easy it is to earn new reward points and entice them to keep spending more. Even when the reward credits are small and not strictly monetary, customers will still feel a burst of dopamine every time they see their reward wallet getting fatter.

Here are a few ways to ensure success for your loyalty program:

  • Identify the set of actions you want your customers to take
  • Setup different rewards for different customer actions
  • Give each of the reward programs great names (e.g., Amazon Prime, NikePlus Membership)
  • Make your reward points value-driven, not necessarily monetary
  • Offer multiple enrolment opportunities based on time, customer journey, and behavior
Customers are smarter than ever and looking for more value. More than just customer service, they want a customer experience. - Shep Hyken, Chief Amazement Officer, Shepard Presentations Click To Tweet

The Loyalty Report published in 2017 found that as many as 66% of customers modify their shopping to maximize loyalty benefits. This means that loyalty programs can help your e-commerce business increase repeat purchases, average order value, customers’ purchase frequency, and eventually your customer lifetime value (LTV).


3. Personalize customer experiences

Having personalized content ensures better context-sensitivity and higher relevance during a search.

Personalization in e-commerce plays a huge role in helping you optimize customer retention because it’s local, dynamic, and contextual. Brands like Netflix and Uber are doing exceptionally well to offer highly personalized services to their customers, such as showing different content to different demographics, changing their product UI based on user behavior, or tailoring a unique customer experience as individually as possible.

For example, your e-commerce can benefit hugely by personalizing customer experience if you can:

  • personalize their search results
  • personalize in-product messaging
  • send relevant emails or push notifications
  • recommend products based on a user’s browsing behavior
  • show estimated delivery date based on their location
  • display complementary products they might like
  • offer customized checkout options

I personally love the convenient checkout options I get with the few e-commerce brands I shop with. When I buy a new book, for instance, I can choose to pay cash on delivery once the book is at my doorsteps, pay using one of the cards saved on my account, or use the money in my e-wallet to checkout. This level of personalization looked difficult to achieve until the recent past, but it is just a matter of configuring the right tools and tweaks for today’s e-commerce businesses.


4. Be high on social media interactions

Today’s fast-paced economy requires your business to move to places where your customers hang out. Luckily for the B2C segment, we already know where that place is on the internet—social media. Using social media to foster relationships can be fun for both, your business and customers. All the while, you also have plenty of opportunities to promote your brand and increase your bottom line.

Social media marketing for e-commerce, also known as social commerce, comes with a two-pronged advantage: you can acquire new customers while retaining your existing ones. Facebook for Business, Instagram, Twitter, and Pinterest offer specific advantages for businesses to engage meaningfully with customers and make the most out of their social media spending.

But don’t limit your social commerce to marketing and sales, because customers are increasingly using channels such as Twitter and Messenger to look for instant support. SocialCommerce_FreshchatAccording to research, about 67% of consumers across all industries use social media channels to resolve their queries. That’s probably the reason why 44% of online buyers prefer to live support on e-commerce websites.


5. Don’t be afraid to upsell and cross-sell

If you do it right, upselling and cross-selling is not just about making more money out of a customer. It’s also about guiding them on the right track and helping them get more bangs for their bucks. Jeffrey Gitomer, prolific author and sales trainer explains upselling as a strategy to help customers win:


“…what you need to share with me [customer] is, how do I win by taking the upgrade? Don’t just tell me what the added value is…I want to know the productivity. And I want you to understand why I bought it from you in the first place. If you understand all that, then your entire presentation should be about how I win. Tell me how I win. When I win, you win.”


Upselling and cross-selling are like placing packets of cheese slices next to the bread shelves in the supermarket aisle because you know that customers prefer buying both items together for their breakfast needs. If your business understands what is the bigger problem that customers are trying to solve and offer a more packaged solution, cross-selling and upselling become value-added services for them. In e-commerce’s context, it’s about convincing them that two heads are better than one. Refine your product recommendation algorithms or display similar items that other buyers have bought along with it so that customers have a fulfilling buying experience.


Retain, reward, and rejoice

Churn is the enemy of business prosperity and the best way to fight it is to ensure you focus on the people you can prolong your relationship with for the longest time possible. In principle, customer retention is much like the Pareto Principle: you get 80% of your profits out of the 20% of the energy you invest. The 80% might include churning customers, product-market mismatch, or other areas you don’t have control over.

But that shouldn’t bother you as long as you have the unwavering following of your 20% of customers who love doing business with you. If you can abide by this minimalistic 80/20 rule in e-commerce, you can yield long-term, repeated, and predictable gains.

Customer acquisition looks great on your marketing dashboard for a while, but it also comes with too many moving parts that are hard to track and manage. On the other hand, retaining loyal customers is like taking good care of the geese that gives you the golden eggs consistently.