Retaining customers is more cost-efficient than acquiring new ones. Once a customer is acquired, focusing on repeat business is crucial due to the higher cost of acquisition.
Customer retention is more cost-effective than acquisition, which can be three to six times more expensive. Balancing acquisition and retention strategies is essential for maximizing profits.
See Totango’s CRC Calculation – Source: blog.totango.com/how-to-calculate-the-cost-of-customer-retention-versus-customer-acquisition/
Calculating the Cost of Customer Retention
Customer retention cost (CRC) can be calculated by adding up all the costs required to retain customers over a given period and dividing by the number of customers retained during that period. These costs can be averaged over your entire customer base or calculated per customer.
The procedure for calculating CRC can be expressed through the formula:
CRC = Total costs for customer retention / Total number of customers retained
For example, if total customer retention costs for the year added up to $200,000 and you retained 5,000 customers, your average CRC for the year would be $40 per customer.
Retention costs break down into a few general areas of expenditures:
- Customer success efforts to help customers set and achieve goals
- Account management and renewal costs
- Customer engagement and adoption systems and programs
- Professional services and training
- Customer marketing to promote renewals cross-sells and upsells
- Discounts that reduce the price of sales to repeat buyers
- Opportunity costs for time spent on retaining current customers instead of acquiring new customers or selling to other clients
These costs will vary by industry. In general, the biggest expense category is usually staffing costs for paying salaries of customer success managers (CSMs) and other customer success team members, so you may find it useful to monitor your revenue per CSM. Customer success technology and programs constitute other major expenses. Altogether, as a rule of thumb, CRC costs average three to six times less than CAC costs.