It costs 5x more to attract a new customer than to retain an existing customer.

Re:It costs 5x more to attract a new customer than to retain... by gizmo on Monday November 25, 2013 @09:12AM (#6794072)

In my experience this is false for SaaS products. This is because you can get new customers by improving the amount and quality of passive traffic you get, or by optimizing ads. This has a very good return on investment. But if a customer is somewhat unhappy and wants to leave but you persuade them to stay by building that "one small feature" they really wanted your return on investment is terrible. The feature will take several days to build and test and in exchange the customer will be happy for a only month or two after which they will again come with unreasonable demands.

Retaining a customer makes a lot of sense when you are a consulting shop where customers pay you for the work you do. In a SaaS world where a small percentage of the customers is already responsible for 80% of the support load trying to retain them is often just not worth it.

How much effort you should put in retaining a customer is a function of the cost to require new customers (CAC) and the LTV of the customer. And for SaaS focusing on customer acquisition works much better. Or to put it really simply: if your goal is to grow your SaaS business at 20% month over month the few customers that want to leave but could be persuaded to stay are simply a distraction.

[ Parent | on HN ]

Re:It costs 5x more to attract a new customer than to retain... by tlogan on Monday November 25, 2013 @10:49AM (#6794672)

The most important thing in any business is that you really need to know who is your customer and who is NOT your customer. If you master that, then everything else is "easy".

Here is my take on this:

- if customer is leaving because he or she is demanding some feature to be implemented, then he or she is not your customer anyway.

- if customer is leaving because your service seems too expensive, then he or she is not your customer anyway.

- if customer is leaving because he or she is generally unhappy about the service, it is important to work hard to understand customer use case and whether your solution is really for that customer

- if customer is leaving because your service does not work or it is flaky, then... oh well fix it and try to convince customer via nice support. Or maybe that feature you are selling should not be part of your service...

[ Parent | on HN ]

Re:It costs 5x more to attract a new customer than to retain... by lsc on Monday November 25, 2013 @11:19AM (#6794935)

Hah. See, I look at it from the perspective where spending... just about any effort on a single customer makes them unprofitable. So yeah, if someone is a big complainer (and they complain about things that I don't think are problems for everyone) I try to get them a refund and into a competitor as gently as possible. But, I still mostly agree with the article.

For example, there is much price competition in my market. Yes, you increase your resources per dollar over time. Moore's law, and more to the point, your competitors are doing it. But, you can't just give the new, better deal to your new customers, you have to give that new, better deal to your existing customers, first. Linode has been famous for this for a while. Last time I lowered prices on my front page, I actually reduced the dollars I charged existing customers, which is even more unusual. Normally, you keep the dollars the same and just give them more resources. As an aside, I'm way behind, price-wise, right now. My plan is to keep the dollars charged the same, and just give customers more ram/disk, as is traditional. (I've upgraded maybe 1/4 of my customers to my first upgrade level. I suspect I may need to go further than that, though.)

I've watched several (ex) competitors give new customers better deals than existing customers... and it just doesn't work at scale, when your per-customer margin is razor thin.

[ Parent | on HN ]

Re:It costs 5x more to attract a new customer than to retain... by sharemywin on Monday November 25, 2013 @09:49AM (#6794246)

I think the right amount of customer service is industry/product area specific. I don't think he's talking about modifying your product. But, if all your competitors are offering phone supoprt and your not you might want to consider it. This is all part of product market fit though.

[ Parent | on HN ]

Re:It costs 5x more to attract a new customer than to retain... by hobs on Monday November 25, 2013 @10:19AM (#6794442)

Working in said situations, the unfortunate truth is that after a certain company size, what I have seen is that the management generally doesn't give a shit about the support load if the customer is in the top 10% of customers generating income.

A hidden cost (besides the obvious "they are paying for the entire support department" cost) is that if the industry you are working with is a niche industry, those customers can also poison the well you are drawing from, even if you expend everything to help them, some are beyond help. Fire them as fast as you can!

[ Parent | on HN ]