The Cost of Acquiring a New Customer and How to Build Brand Loyalty
True or false? It costs more to acquire a new customer than it does to keep an existing one.
The answer is true. In fact, on average it costs five times more to bring in a new customer than it does to bring back an existing customer. With this said, the cost of acquiring a new customer depends on the industry and type of business. Bringing in a new customer is more time consuming and costly than maintaining an existing customer relationship. You often have to build a connection from the ground up and interact at various touch points before they're ready to make a purchase.
On average, it costs five times more to bring in a new customer than it does to bring back an existing one.
Returning customers have already had a positive experience with your brand, and they know the quality of product, service, and interaction to expect. Basically, we have to do less to convince them to make another purchase at the bottom of our sales funnel. We just need to keep providing value to maintain their loyalty.
With that being said, we need to keep in mind the 80/20 rule.
What’s the 80/20 Rule?
The 80/20 rule essentially means that you will get 80% of your business from 20% of your customers. These customers have a higher lifetime value. This could mean that they are longtime customers, loyal and frequent shoppers, or their average spend per transaction is higher. Even though they only make up 20% of your business, these customers are more profitable than acquiring a bunch of new customers, who might only interact with your brand once or twice.
That does not mean that you should pour all of your resources into this top 20% or stop trying to acquire new customers. Instead, you should spread your marketing budget over new customer acquisition activities while also nurturing relationships through customer retention activities.
Once you get new customers, think about how to build the best possible experience and reward their loyalty to your brand.
Improving the Customer Experience
The best way to improve your customer experience is simple: always put them first.
Providing excellent customer service in person as well as through social media channels is the new expectation for brands. These practices make your business more accessible and make your customers feel more valued.
If it’s feasible for your business, consider personalizing content, merchandise, and interactions. Offering recommendations based on past purchases or similar products, coupons based on frequently bought items, or even an option to engrave or emboss products makes consumers feel unique and appreciated.
Finally, ensure that you offer a good checkout and payment experience. As we move towards a cashless society, being able to efficiently and securely accept debit and credit transactions is essential to scaling your business, appearing more legitimate, and improving your customer’s checkout experience. (Not sure where to start? Here are some questions to ask when shopping for a merchant service provider)
The obvious way to build loyalty is by offering customers an incentive to return by implementing a loyalty program. Although creating a loyalty program might seem daunting, small businesses can easily offer punch cards, discount coupons for email signups, or store credits for referral purchases.
Additionally, post-transaction, there are a few ways to build brand loyalty. Using customer relationship management (CRM) software is an effective way to track information about your customer’s purchase behaviour and concerns. This can facilitate customer service interactions, and provide data to better cater to your customer’s needs. Research has shown that CRM software has improved customer retention by 27%.
Offering gift cards is another way to build brand awareness and loyalty. Gift cards are one of the most requested gifts and help remind your customers to return to your business. Gift cards are also a great way to leverage your loyal customers’ connections to bring in new customers who are gift card recipients.
Finally, the added bonus of building strong brand loyalty is the potential to create brand advocates. Studies have shown that consumers value the opinion of their family and friends more than they trust advertisements. Your loyal brand advocates will help you to grow your business by spreading positive word-of-mouth and bringing in new customers as referrals.