Countless times I’ve heard business leaders rattle off the following old barb as if it is some new insight that showcases their cleverness:
It’s cheaper to retain a client than it is to attract a new client.
On average, I believe it’s true. But, we don’t often deal with things on average. We deal with things on the margin and I’m not convinced that this old barb is always true on the margin.
I believe on the margin it can be just as expensive, if not much more expensive, to increase retention than attract new clients. If this weren’t true, we’d see much more upward movement in client retention rates — to very near 100% — than we do. But typically, retention rates of 70% – 80% are considered pretty darned good.
Businesses tend to hit a retention plateau and stay put. Increasing retention beyond the plateau is extremely difficult and expensive and is the business strategy equivalent of fools gold.
The mistake made by business leaders is to assume that what’s true on average is also true on the margin.