Contrary to popular belief, revenue from retention is not free.
Like there’s a cost of acquisition. There’s a cost of retention per customer.
Acquisition costs are considered as a one-off payment for complete CLV (Customer Lifetime Value)
Now we have acquired the customer, it will yield fruits in the future, free of cost.
All the credit for future CLV is given to the acquisition team for their efforts.
It might work in B2B or in services, but in consumer brands DTC / ecommerce, there’s a a cost of retention.
It might not be as high as acquisition.
Some are hidden and some are straightforward –
Accidentally spending acquisition costs on existing customer
That’s a big one. Mostly paid marketing costs are not divided between existing and new customers.
Brands spend close to 10-20% of their acquisition budgets on existing customers without even knowing it.
Some smart marketers have exclusions, but the same customer can search again or might access it from a different browser.
Discounted cash flow
Cash allocated for acquisition is upfront, whereas CLV comes after 6 months.
Depending on your financials, it might put pressure on your cash flows.
It’s more relevant for bigger brands, but the cost of discounted cash flows applies to small brands as well.
Discounts and reward points costs
Perks or discounts are given to the consumer for repeat purchases.
That might be similar to or higher than for acquisition.
Content production and tool costs.
That’s one obvious.
Creative agency, email marketing agency, etc.
Also most email marketing tools and loyalty program tools.
To optimize your marketing efforts, know where your marketing dollars are allocated first –
Break your marketing costs,
- Per Channel
- Per Product/Category
- Per Customer Segments (New or Existing)
The goal is not to spend less on retention but to know what’s the ROI of your existing cohort.
Retention is not free. Like everything in life, there’s a cost to it.