Happy 75th Independence Day!

Retention marketing focuses on increasing revenue per customer from existing customers rather than just running behind acquiring new customers. In this article we will dive deep into this new and trending art called retention marketing.

But before we begin let’s understand two very important terms 

CLV : Customer Lifetime Value means the total amount of money a customer will spend with you during your entire relationship. This number is usually a well educated, data driven estimation. 

CAC: Customer Acquisition Cost is the amount you spend in marketing across platforms and channels to acquire a new paying customer.

If your CLV is high enough you can afford a higher CAC and do retention marketing to recover the CAC and make profits over a period of time. 

The Need of Retention Marketing

A few years ago Google and Instagram ads were cheap ways to drive traffic to your website. But that is not the case anymore. Ad Costs (CPC’s) are at an all time high, and that trend isn’t changing anytime soon. It is easier and cheaper to get more orders from existing customers than acquiring new ones. 

Effectiveness of Retention Marketing

The core fundamental before you even think about retention marketing is to ensure a high CLV. But how do you do that? Well, make sure that your brand has a good product lineup to sell to each customer from time to time creating a high CLV. 

This could be in the form of a new product or a new version of an existing product or an addon, like clothing or a mobile phone or a smart watch respectively. If your brand does not have a strong product lineup, retention marketing may not be effective for your business.

Retention Marketing vs Acquisition Marketing

The idea of retention marketing is to acquire a new customer and market more products through cheaper mediums like email marketing or sms marketing. But they may not always yield the desired results, so you will have to run ads for existing customers again. Sounds like we’re back to square one and the whole point of retention marketing is lost, right? 

Not exactly. A customer who has purchased from you earlier is more likely to buy from you again than a new one. So if 100 people (not your customers) see your Ad, 5 might buy, but when 100 existing customers will see your Ad, 20 might end up buying and you will be able to achieve a higher return on your ad spend.

An Effective Retention Marketing Strategy

A good strategy to do retention marketing is to strike a good balance in your Ad spends between new and existing customers at different stages. But what does that mean? Let me explain. 

Initially you will have to spend more money on acquiring new customers but as you grow you could split the ad spend between acquisition marketing and retention marketing. When you’ve acquired a few customers you could continue to spend the majority of your Ad budget towards acquiring new customers but you can set aside a small budget focused towards getting more orders from your existing customers. As your customer base grows further you can gradually increase the Ad spend on retention marketing and decrease the Ad spend on acquiring new customers.

This will result in your brand growing profitably while continuing to acquire new customers.

Refer to the image below

Is retention marketing the same as performance marketing?

No. Retention marketing is a subset of performance marketing.

More ways of doing retention marketing

  • Build a Customer Loyalty Program
  • Offering coupons for next purchase 
  • PayDay sales for existing customers
  • Email & SMS marketing campaigns

Comment below, on more ways of doing retention marketing.

Leave a Reply

Your email address will not be published. Required fields are marked *