New research from James Hurman and Klaviyo reveals that outdated retention strategies may be costing retailers billions.
Australian SMEs in retail could be missing out on AUD$2 billion by focusing on retaining the wrong customers, according to a new study by advertising expert James Hurman and B2C CRM leader Klaviyo.
The findings, set to be presented at K:SYD, are based on $1.2 billion in spending from 1.7 million ecommerce customers across Australia and New Zealand, analyzed by Klaviyo partners Overdose Digital and Andzen. The data challenges the belief that higher customer retention or loyalty programs always drive growth.
The study found that SMEs with high retention rates (over 50%) often faced stagnant or declining revenue, while those with lower retention (under 50%) but growing customer spend achieved significantly faster growth. Businesses retaining fewer, higher-spending customers grew over three times faster than those with high retention but flat spend.
“There’s a piece of advice we’ve all heard so often that it’s almost a law of nature. That is, acquiring a new customer costs a business five times as much as keeping an existing customer,” said James Hurman, founding partner of Previously Unavailable and co-founder of Tracksuit. “What we found in the Klaviyo retailer data turns that old wisdom on its head. It’s not how many customers you retain, but rather what you do with them that really matters.”
With Australia and New Zealand’s $58 billion ecommerce market and an average 24% retention rate, Hurman estimates SMEs are leaving $2 billion in potential revenue untapped by prioritizing retention over growing spend from existing customers.
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Not all customers are worth keeping
The study tracked customer spending over two years, identifying high-value (“right”) versus low-value (“wrong”) customers. Loyal customers who spent less over time hurt performance. For instance, one SME with a 39% retention rate saw a 46% drop in customer spend in 2024, leading to a 14% revenue decline. Another with just 14% retention saw spend rise by 14% and revenue soar by 130% from 2023 to 2024.
“Focus on customers who increase their spending, not just those who stick around,” advises Hurman. SMEs should track spending trends rather than retention rates, which vary by category and business size, and use marketing and service to boost high-value customer spend.
Loyalty programs may not deliver
The report also questions loyalty programs. SMEs with loyalty programs retained more customers (30% vs. 20%) but grew slower (14% revenue growth vs. 48% for those without). This suggests SMEs might see better results by investing in other growth strategies.
Service drives emotional loyalty
A survey of 500 consumers in Australia and New Zealand found that exceptional customer service is the top driver of emotional connection to a brand, far outweighing product quality or advertising. Poor service—such as long waits or lack of human interaction—quickly erodes loyalty.
“Great service builds loyalty, but poor experiences destroy it,” says Vicky Skipp, Klaviyo’s director of mid-market and enterprise. SMEs can stand out by prioritizing responsive, personalized service to avoid negative experiences and drive repeat spending.
Why this matters for SMEs
For resource-limited SMEs, these insights are critical. By focusing on high-value customers, rethinking loyalty programs, and prioritizing stellar service, SMEs can unlock growth without stretching budgets.
Track customer spending trends, invest in service, and evaluate whether loyalty programs align with your goals to capture a share of the $2 billion opportunity.
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