Khalid Saleh of invesp reports that it costs five times more to attract a new customer than it does to keep an existing one.[ Saleh (2017). https://www.invespcro.com/blog/customer-acquisition-retention/] That’s a staggering figure! The other figure I find shocking is that 44% of companies have a greater focus on customer acquisition versus only 18% on retention. This makes absolutely no sense to me. However, assuming that the general survey results are statistically relevant for the dental industry, this presents a massive opportunity for you!
Let’s look at the numbers. These figures are strictly for illustration purposes and your actual figures may vary. Working off of the following assumptions:
- The Client Acquisition Cost is constant at $1000 per new client
- Average Lifetime Value of a new client is $7500 over 15 years
- The Client Retention Cost is 20%, or 1/5th that of the acquisition cost
Using the assumptions above, you would need to spend $1000 to attract a new client.
The Client Acquisition Cost (CAC) = Total # of new clients / Total sales and promotion expense
The Average Lifetime Value (LTV) is calculated at $2500 every five years and the average clients stays with a practice for approximately 15 years, which totals $7500.
LTV = Total Revenue / Total Clients
Assuming that this practice does not spend the $200 retention cost to keep a client, the client will only stay 10 years, leaving an opportunity cost of $2500. The total net value of a new client is $4000 (-1000 + $7500 – $2500).
Now assume that this practice invests the $200 retention cost to keep a client and the client will stay the full 15 years. That means this practice has spent $200 to earn another $2500 over the last five years of the client life with that practice.
Happy clients are more likely to refer someone when they know, like and trust the practice. Suppose the practice converts a referral from a happy client. The cost of the conversion is $0 while the lifetime value is $7500! Please keep in mind that this is an ultra-conservative figure and for demonstration purposes only.
To compare the two strategies, the ROI on attracting new clients is 4x ($4000/$1000) while the ROI on retention is 12.5x ($15000/$1200). The retention return is so much higher because the practice earns:
- the full $7500 on the original client
- $7500 on the referral
- less the original $1000 acquisition
- Less the $200 retention expense
I hope you can see now the importance of treating your existing customers like gold! Most practices are overly concerned about New Patients…..and in the process forget about the loyal patients in their practice today. Don’t make that mistake!