Customer Retention Cost (CRC) is the cost of keeping an existing customer purchasing. It is calculated by dividing the total costs attributed to retention programs by the number of active customers during the analyzed period. This cost directly affects lifetime values (LTV), with high retention costs potentially lowering margins and profits. Understanding and managing customer retention cost is essential because it directly impacts a company's profitability and long-term sustainability.
Effective strategies to manage and reduce CRC involve enhancing customer engagement and satisfaction without excessive spending:
Comparing customer acquisition and retention costs is essential for businesses to maximize growth and profitability. Acquisition costs involve expenses related to attracting new customers, while retention costs focus on keeping existing customers loyal and satisfied. The cost of acquiring a new customer can be as much as five times higher than retaining an existing one, emphasizing the importance of balancing both costs.
High retention costs can diminish margins and reduce the overall customer lifetime value, affecting a company’s profitability. To counteract this, businesses should:
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