When a prospect is faced with the question of a new purchase, no matter the number of new providers available, the options are typically two - repurchase from current provider or seek a new provider. Some products and services are easier for repeat while some are not. With some products or services, you can easily achieve a 50 percent retention resulting from customer loyalty.
A lot of businesses are also losing customer loyalty and their customer defect rates are increasing. The big question that arises is Can you increase customer retention? And if so, what impact will it have on your bottom-line. This question can only be answered by you for your business. Do you know you current customer acquisition and retention rate? And what is the relation to your profit. Depending on the type of business, with a zero percent defection rate, your business growth percentage might not exceed the single figures. It now leaves the customer acquisition as the biggest challenge and also the engine for growth.
With an effective customer acquisition system, you can replenish the defected customers and also grow your business. In focusing on customer acquisition, it must be realised that acquisition is not about just getting a customer in general. Neither is it about targeting high paying customer with the highest probability of purchase. Customer acquisition is actually about targeting prospects who will purchase, be loyal and can be profitable during their lifecycle.
Mentioning customer lifecycle in the previous paragraph brings to mind the mathematical calculation that anchors the acquisition of profitable customers. The two side of the equation harbours customer lifetime value and cost per acquisition with an operator in-between. In your business, what is the operator : equals to (=), greater than (>) or less than (<). To remain profitable and grow, your customer lifetime value must be greater than your cost per acquisition. When considering promotion, you need to ensure that you are not attracting the wrong kind of new customers. Customer acquisition cost must be recovered to the point where profitable revenue is earned from the customer.
Most business pitfalls are their inability to realise that there is a shift in acquiring customers and the cost implication. Unfortunately, a lot of business are also stuck in the paradigm of " people or businesses need our products or services" and so we will be okay. In actual sense, this means "we have no idea of what we are doing or talking about". This is the bane where most businesses find them self today, the profitable customer baskets are dwindling and the symptoms are felts all across the business. Businesses and business leaders need to get their head unstuck from the sand and take a critical look at their customer acquisition because it is the key to continuous growth and sustainability.
