Customer Retention: A Closer Look at New vs Repeat Customers

Editor’s Note: This post originally appeared on the Control blog here.

Which is more valuable — a new customer or a repeat customer? Should McDonald’s advertise to people who love Big Macs, or to people who prefer Whoppers from Burger King? There are strong arguments to be made for either choice.

Repeat customers are already loyal to your brand, and with this loyalty comes an incentive to buy. Repeat customers may also be more prone to sign up for new services or products.

On the other hand, the acquisition of new customers may bring your company to the next level. To stay with our burger example, the people who love Big Macs can only eat so many before they are full. If you want a much bigger bite of the market share, it’s going to take new customers.

New Customers

Acquiring new customers is easier said than done. A successful marketing campaign has to determine not only who are the right customers, but how to communicate with them effectively. The most pertinent question is:

How do we convince new customers of the value of what we are offering?

This question has led to trash cans full of crumbled notes in marketing departments all over the world. It is not a simple task to find new customers, and it’s not a cheap one either. There are varying estimates, but adding a new customer could be “five to 25 times more expensive than retaining an existing one.” (Harvard Business Review)

When pulled off effectively, however, new customers will revitalize a business. The acquisition of new customers can turn a struggling start-up into the new phone app in millions of pockets.

Repeat Customers

Holding onto your customer base presents difficulties of its own. Over time a business will change and evolve, and inevitably some of your first customers will not like these changes. As your company scales, sometimes the initial core users are forgotten or ignored.

But a business that chases new customers at the expense of repeat customers is making a fatal mistake. Those repeat customers are your loyal base, and they are invaluable to your company’s success. Repeat customers have invaluable experience with your product or service — indeed they may even know what is right or wrong with your business before you do. In addition, if you treat your existing customers right, they will refer new customers, solving one of your most complex problems for you.

“1000 True Fans”

Kevin Kelly, founding editor of Wired Magazine, talks about the importance of building an audience of “1000 true fans”. He’s offering advice to young creatives: you should not focus on gaining an audience of millions, Kelly says, but instead of gaining 1000 true fans. This is an interesting idea to consider for small businesses as well.

Most small businesses can survive with a loyal audience of a thousand customers. Though most businesses also dream of scaling to the point that their product or service can reach an audience of millions. But while scaling, we must not forget the insights and the value given by the first 1000 fans who got the company off the ground.

Finding the Right Customers

So which is more valuable — a new customer or a repeat customer? These pursuits are not necessarily so different: they are two sides of the same coin. If you don’t pay attention to the needs of the first thousand customers, you will never reach millions.

So much time and money is spent looking for the right customers. Businesses sometimes fall into the trap of believing that the right customers must always be new customers. But the truth about scaling a company is that the right customers are often the ones you already have.

Kathryn Loewen
Kathryn Loewen
Founder & CEO

Kathryn has more than 15 years of experience in banking technology and payments management, working with companies such as SAP and Citigroup. She is the Founder and CEO of Control, a leading transaction analytics and alerts platform for SaaS and Commerce businesses. Control was founded in 2014, and is backed by Vanedge Capital and BDC.
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