I can hardly think of a topic I can get so enraged about as the myth of ‘keeping a customer is X times cheaper than winning a new one’. Of course, it is cheaper to do business as usual and seeing customers not churn than to invest in new customers. But that, I suppose, is not, what the claim ‘keeping customers is cheaper than winning new ones’ is about.
This claim should be about investing money to keep customers vs. investing money to win customers. Therefore, you need clear proof, that the money invested into retaining your customer has caused him to stay, that otherwise, he would have churned. Then, the claim should somehow account for the lifetime perspective of both options. How long will a customer kept stay with you in comparison to how long will the new customer stay with you?
An incredible collection of dead-ends, false quotes, circular referencing or even blatant lies
Now for the reason of me being enraged: In ten years of following more or less any claim of this kind I’ve ever seen, I found 0 (Zero!) cases, which could substantiate this claim. What I found instead is an incredible collection of dead-ends, false quotes, circular referencing or even blatant lies.
Here comes my newest example. Today, Digiday’s newsletter comes with a sponsored link by subscription management service provider Zephr. In this text, you find this claim: “it costs between 5 and 25 times more to acquire a new customer than to retain an existing one” (25 times, uff!) To ‘proof’ these numbers, Felix Danczak, Zephr’s COO, links to an hbr.org article.
Gosh!, the famous, renowned, indubitable, most authoritative Harvard Business Review! Surely, this must be a clear case.
Only it isn’t. Just follow the given link, and you’ll see, that the article of hbr.org indeed starts with the claim, that “acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one”. But hbr.org doesn’t even bother to support this claim with any kind of reference.
What it does instead is to continue the article with another claim: “increasing customer retention rates by 5% increases profits by 25% to 95%.” That might be the case. But it is about something different. And, look!, even this claim of hbr.org is incredibly poorly proofed. In this case, hbr.org links to a PR-doc of consulting firm Bain & Company. This doc is a three-page PDF that superficially tells case stories of ‘loyal relationships’. All cases without any attention to the costs associated with what they are about.
This little story is typical for what happens whenever you seriously dive deep into the ‘keeping a customer is X times cheaper than winning a new one’ claim. It is a completely representative example.
Last, not least
Keeping customers is extremely important for all companies. Especially for subscription companies! But to play off customer acquisition against customer retention is stupid and mostly nonsensical. Customer retention schemes often come without ROI-calculations. Whilst, meanwhile!, finally!, most customer acquisition schemes come with a clear set of KPI measurements.
Balancing out retention against acquisition is apples and oranges par excellence.
Editor and Publisher, pv digest
This analysis was first published here and is republished with kind permission.