I have a question for you… How much of your marketing budget is dedicated to customer marketing right now? For many companies, answering this makes them a little uncomfortable because the truth is, customer marketing isn’t on their radar. Or if it is, it’s way down the list of priorities. If this sounds familiar, it’s time to really consider how much you spend on customer marketing versus paid customer acquisition when it comes to marketing budget allocation. Here’s why.
Customers = Revenue
Even though most business leaders are well aware of the (relatively old) stat that it costs between five and 25 times more to get a new customer than to retain an existing one, companies still tend to put the lion’s share of their marketing budget into new customer acquisition. Maybe it’s the feeling of accomplishment or the allure of adding new logos to their website, but getting new customers can just feel like a big deal.
But, did you know that a 5% boost in customer retention increases profits by 25% to 95%? That sounds like an incredibly bigger deal to us. And, it’s also been found that organizations miss out on $1.6 trillion in revenue simply due to losing customers who leave them for their competitors.
There’s also a lot to be said for the power of upselling and cross-selling. It’s been discovered that companies have a 60 – 70% success rate of upselling products and services to existing customers, while they have only a 5 – 20% chance of selling them to new customers. Furthermore, existing customers spend, on average, 31% more than new customers do.
So if you’ve been shying away from investing dollars into marketing to your customers, it’s time to turn that ship around. They’re worth it.
Admittedly, there’s a lot that goes into customer retention and upselling/cross-selling. Customer service is a huge piece of the puzzle, as is delivering a stellar customer experience. Actual marketing can’t be overlooked, and it falls into two buckets: unpaid and paid. The unpaid efforts are those that are often thought of as “nurturing,” like emailing a newsletter to your customers or giving them a call to check in (and remind them you’re still there). But paid marketing is where most organizations are falling short.
It might feel weird to set up an ad campaign for existing customers, for example, but it works. Some of the most effective paid types of customer marketing include search, social media advertising and retargeting advertising. All of these mediums allow for granular targeting, so you can get very specific with your messages and graphics.
For instance, you may want your current customers to know about a new supplement you just released that many of them have not yet purchased. Your ad copy for this will look quite different from ad copy intended for new customers because current customers already trust you and presumably like other products of yours. You don’t have to win them over; you just need to introduce them to the new offering and/or convince them of the benefits.
Finally, how much budget should go to paid customer marketing efforts? A general best practice is as follows: 20% of sales and marketing costs go toward customer retention, 15% is used for expanding current customer revenue (e.g. upselling or cross-selling) and the remaining 65% gets earmarked for new customer acquisition. These are rough figures, of course, but should give you a good idea of how the different budget items may compare to one another.
So, how is your marketing budget allocation divvied up? If you haven’t yet begun true customer marketing that gets a set portion of your budget, we invite you to consider doing so now. It’ll pay off. Need help setting a customer marketing strategy? Give us a call!