Marketing Budgets: How Much Should I Spend to Retain Existing Customers?

If everyone knows it is easier and cheaper, why don't most businesses focus the majority of their marketing strategies and budgets on their existing customer base?


Last Update: November 28, 2015

Leading experts recommend that businesses spend 75% of their marketing budget to retaining existing customers (and re-engage them). Yet surprisingly, most companies do the exact opposite. Even larger corporations like Max Factor cosmetics and Target (not just the little SMBs) make the mistake of spending too much money chasing new customers (or ones that have left) and often ignore their existing ones.

Several years ago,  I held a senior commercial role at one of the largest retail businesses in Australia and I can confirm that they spent <20% of their budget to retain existing customers. They, like 95% of businesses out there, spend the bulk of their marketing budget chasing new customers or attempting to re-engage those that have left and gone to the competition.

And therein lies the biggest mistake you can make as a small business owner.

 

Retaining Existing Customers

Every dollar spent on direct marketing to retain existing customers is actually worth fifty times the equivalent amount spent chasing new customers. With above the line advertising (traditional mass media advertising: newspapers, television, radio, outdoor, Internet), is very hard to capture the attention of new customers, embed your message in their mind and compel them to act.

It is much easier (and cheaper) to reinforce your message with an existing customer and encourage repeat visits.

So, if everyone knows it is easier and cheaper, why don’t most businesses focus the majority of their marketing strategies and budgets on their existing customer base?

The answer to that question is unclear. But what is clear is that there are four simple strategies you can use today to boost sales and retain existing customers:

 

1. Spend 75% of your Marketing Budget on Existing Customers

The bulk of your sales and marketing efforts should be focused on direct communications and not on social media, public relations, print (magazines and newspapers) or pay-per-click (PPC) advertising. For those of you who are established and have been in business for a few years, this is going to free up a lot of time that has been wasted on chasing new customers.

 

2. Prepare to Maximize Return on Investment (ROI)

I recommend that you take the time today to analyse your existing customer data. Find out the following things:

  • What are they buying?
  • What could you introduce them to which would increase gross profit margin?
  • How can you drive purchase frequency (website traffic, visits, etc.)?

 

3. Realize that Frequency Lifts Sales by 75% More Than Upselling

It is much more effective and profitable, to focus on getting customers to return to your website or business, as opposed to trying to sell them one more thing while they are there.

 

4. Brick and Mortar? Focus on Customers Within a 6-mile radius

Customers who have moved outside a 6-mile radius of your brick and mortar business can be particularly tricky to re-engage. In research conducted at one of the largest retailers in the country, we discovered that 82% of the revenues were attributable to customers that lived within a 6-mile radius.

In my experience working with hundreds of small and mid-sized businesses, this statistic still holds true. If your customer has moved outside of this radius, it does not make sense to waste any of your budget trying to reactivate them.

Even though it’s important to appeal to and attract new customers, it’s absolutely crucial to your company’s survival to retain and nurture the customers that have supported and shopped with you to-date.

Everyone knows that is cheaper and easier to garner incremental business from existing customers but what separates the truly successful entrepreneurs from the pack is the ability to put this knowledge into practice by allocating a large portion of their marketing budget to focus on existing customers.

 

 

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