Spiral Marketing: The More You Know, The More You Can Know

January 31, 2009

Acquisition or Loyalty?

I was asked recently whether, in this economy, one should focus on retaining existing customers or acquiring new ones.  If you are in a forced-choice situation, you should choose loyalty – there have been many studies across many industries that validate the fact that a follow-on sale from an existing customer is 5 to 11 TIMES more profitable than the first order from a new customer.

Ideally, though, you wouldn’t have to choose, because if you want to estimate the lifetime value of a customer, over time you will almost always find that a decent, close-enough estimate for lifetime value is 3 to 4.5 times annual profit earned from that customer.   Therefore, not pursuing acquisitions for too long a period of time will start to erode your profitability.

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