Debunking Marketing Myths: The Cost Of Acquisition Versus The Cost Of Retention

How many times have you heard that it costs X times more to acquire a customer than to retain one? The most recent incident for me was in an article in CRM magazine. In this case, the author wrote

according to Gartner it costs eight to ten times more to acquire customers that it does to retain them.”

Oh really? I had heard it was five times more, but I guess that with inflation and all, it’s now eight to ten. Yeah, right.

It’s time to eliminate this urban legend from our repertoire. Here are just a few of the reasons why the claim that acquisition is so much more costly than retention is pure fiction. The costs of acquisition and retention:

1) Vary by industry, by product, and company strategy.
Don’t tell me that the ratio is eight or ten to one across every product and industry. The automotive industry probably has a fifty (or hundred) to one acquisition to retention ratio. Car dealers, as far as I can tell, don’t spend a dime on customer retention. In the world of financial services, though, I’d bet that HSBC and Emigrant Savings have effectively acquired savings account customers online with above-average industry rates. Retaining — and, as importantly, cross-selling — those customers could not have been as easy (i.e., cheap).

2) Ebb and flow with economic cycles.
Lenders found it a whole lot cheaper to acquire new mortgage and home equity loan applicants a few years ago than they do today. And why would anybody assume that retaining those borrowers from a few years ago was a piece of cake that didn’t require much investment? Hogwash.

3) Are incalculable. Let me put it this way: You have no idea how much it’s costing you to retain customers. Do you include all the costs associated with providing customer service to customers in your retention calculations? After all, if you don’t service them, you will have less chance of retaining them. Do you allocate all IT application maintenance and enhancements to your retention calculations? If you don’t continually improve your transaction and interaction service capabilities, your ability to retain customers diminishes, you know.

No, the fact of the matter is that you don’t have the slightest clue what it costs to retain a customer, because no one has really defined a standard for what costs to include and which ones to exclude.

So the next time you find yourself wanting to cite the “fact” that the cost of acquiring customers is X times greater than the cost of keeping them, do us all a favor. Don’t. Cuz’ it ain’t true.

For more on this topic see The Cost Of Retention Versus Acquisition.

 

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