The Value of Improving Customer Retention

New customers are an important part of any business. The world is an enormous marketplace, and the goal of any business (potentially all businesses) is to try to attract as many customers as possible in order to get the best revenue. But according to several studies, customer attraction isn't necessarily the only part of building a great business. In fact, several studies have shown that customer retention may be the most important factor in building a successful business.

Even the best companies use somewhere between 30 and 50% of their customers every year. That's a staggering number, and while it's often offset by the customers the company brings in, it still represents a great deal of lost revenue.

In addition, some of these customers will never come back, which means that every lost customer shrinks your market by a very tiny amount. Now, even the perfect business can't save every customer. Some customers move.

Some customers die. Some people find other products and services to be more valuable even when objectively the products and services at the first company are better.

But still, an incredibly large portion of your customers will be lost over the course of the year for reasons that are entirely preventable, and these customers represent a great deal of profit. According to "Leading on the Edge of Chaos" by Emmett and Mark Murphy, reducing customer defection by as little as 5% can represent as much as a 25% to 125% increase in revenue. There are a lot of factors that go into this number.

Difficulty in obtaining new customers, competition, and the revenue your products and services bring on a per-customer basis obviously play a key role. In addition, as we've mentioned in the past, there is reason to value customers differently. Retaining a customer that only shops on clearance sales is going to bring in less value than attracting a onetime customer that makes large purchases.

But even the most conservative estimates are going to show that retaining valuable customers has the potential to drastically improve your revenue – keeping your current profit margin as you bring in new customers, and continuing to retain those customers over the life of your business. Focusing on new customers is important.

But focusing on customer retention is potentially more so, especially if you've already developed as a company. If you have limited research dollars, make sure you're allocating them to retention research and not simply focusing on analyzing your market. Here are 5 myths about customer retention .