Which group brings more profits to businesses? Loyal customers or new shoppers?

Which group brings more profits to businesses? Loyal customers or new shoppers?

I am sure you’ve probably heard someone preaching about customer retention at least once in your lifetime whether you are an entrepreneur, employee or both. It’s often said that customer retention is important. However, who brings the most profit to businesses, new customers or loyal customers? If it’s the latter, should businesses then focus their marketing primarily on loyal customers?

I’ve worked with numerous businesses and a common giveaway to entice new customers is a welcome discount. New companies and old companies alike chop 10%, 15% or even 50% off their product or service to capture new customers. It therefore comes as no surprise that 44% of  companies prioritize new customer acquisition whereas 18% focus on retention. It is fairly natural to focus on acquiring new customers especially when a business is in the early stage of growth. However, from the statistics we see that even mature businesses still focus primarily on acquiring. But what if I told you that loyal customers can generate more revenue for your business?

A few months ago, I ordered an amazing salad from a cute Lebanese restaurant. I absolutely loved it and from then on, I have ordered a number of other meals from them. I have not been disappointed. Fast forward to a week ago when I was at my friend’s place, and we were hungry and I went on and on about the restaurant and we ordered food from them. I also remember myself telling two other persons about this same restaurant. Does this sound familiar? I am sure we all have been therewith some business, whether it is food, a spa, a bank etc. We like something about the business so much so to recommend them to others, effectively growing the business. A loyal customer is your best evangelist. They will advertise your brand freely and help grow your business.

Other amazing way to increase your revenue with current customers is through upselling and cross selling.  Once you have captured a customer, you can take the relationship you have with them a bit further. They have engaged your product/service liked what you offered, now you can market an add on for improved customer experience. Upselling in particular can help you increase customer loyalty and improve retention rates. A loyal customer is basically an unpaid marketer. They are not only more profitable, but are more likely to refer your product/service to 50% more people than one time buyers.

The benefits of having loyal customers are massive. The Pareto principle informs us that loyal customers make up 20% of all the customers but contribute to 80% of the revenue. With loyal customers, they help grown the business by referring new customers to it, they are more likely to spend extra and we have the opportunity to upsell and cross sell. You have a wealth of data you can gather from loyal customers and the ability to test new products on them and get their feedback. Therefore, it’s easy to figure out long term who brings the business the most profit.

What businesses can do is when the yare in the youthful stage they invest largely in acquisition. As the business matures they invest largely in account management and customer retention. A business that focuses on customer retention is indirectly focusing on acquisition.  Thus, it’s a win win all round.