Customer Acquisition vs. Retention: Where Should You Invest?
When it comes to business, customer acquisition vs retention - which one is better is a question often asked. Both strategies are crucial, but knowing which one to emphasise can be the difference between thriving as a brand and just getting by.
If you want to know which marketing aspect you should focus on, keep reading as we dive into customer acquisition and retention and try to answer the question.
We also have a quiz you can take to decide if you should focus on customer acquisition or customer retention… keep reading if you want to find out!
Customer acquisition: the growth driver
Customer acquisition is about building your client base. It includes strategies like content marketing, pay-per-click ads, and influencer partnerships.
This type of acquisition marketing strategy can have a high cost, but it is essential for growing, especially in the early stage of a business.
What is customer acquisition?
Customer acquisition is the process of turning a potential customer into a new customer: from attracting a prospect to engaging them and finally converting them into paying customers to expand your business.
What is a customer acquisition strategy?
A customer acquisition strategy is the business growth strategy a business uses to acquire more customers. It usually involves a mix of techniques and involves sales, marketing and more to convert users into paying customers.
Customer acquisition strategies include paid advertising, SEO, social media, influencer partnerships, email marketing and many more.
What is the cost of customer acquisition?
The cost of customer acquisition (Customer Acquisition Cost, or CAC) is a metric businesses use to measure how much they spend to acquire new customers.
An organisation's CAC is the total cost of sales and marketing efforts, including property and equipment, required to convince a customer to buy a product or service.
Customer retention: the profitability booster
Retaining existing customers is typically more cost-effective than acquiring new ones. Retention strategies, such as loyalty programs, help boost lifetime value and reduce churn, leading to sustainable business growth.
What is customer retention?
Customer retention is a metric that measures customer loyalty: the rate at which customers stay with a business in a given period of time.
This metric identifies the number of loyal customers and can help a brand reflect or predict customer engagement, emotional loyalty ties to a company, customer satisfaction and repurchase behaviour.
What are the customer retention strategies?
Some key customer retention strategies are loyalty programs, personalised marketing, and customer support enhancements: the key is building trust with your customers and offering them personalised experiences.
Why is retaining customers important?
Retention marketing can reduce the effort needed to continually reach new customers: retaining customers is overall more cost-effective than acquiring new ones, and this can in turn improve your advertising efficiency and be an important part of your economic strategy.
Should your business focus on acquisition or retention? Take our quiz to find out!
Why customer retention is more profitable than acquisition
When it comes to customer acquisition cost vs retention cost, there’s a clear verdict: retention is where profitability truly shines.
Research shows an increase in customer retention by 5% can lead to a company’s profits growing by 25% to around 95% over a period of time, and that repeat customers spend 67% more than new customers.
If you’re wondering why, it’s key to remember that it takes time and money to interest new customers in your business, and even more to convince them to buy from you - while with current customers, you don't have to fight against as many barriers.
Factors to consider when choosing between acquisition and retention
When deciding when to focus on customer acquisition vs retention, businesses should keep in mind several key factors.
Each of these factors could significantly influence the effectiveness of their strategy and overall success.
Current Business Stage (Startup vs. Established)
Startups often face the challenge of building brand awareness and acquiring initial customers. In this initial phase, focusing on acquisition is essential to gain traction in the market. Startups need to first establish a customer base and prove their value proposition.
Established businesses, on the other hand, usually have a loyal customer base and brand recognition. For them, retention strategies become crucial, as nurturing existing relationships can lead to repeat business and increased customer loyalty.
Industry Competitiveness
The level of competition within an industry can impact whether acquisition or retention should take precedence. In highly competitive markets, acquiring new customers may require significant investment and aggressive marketing tactics.
Retaining customers through excellent service and engagement in less competitive environments may lead to better results. Retention strategies for small businesses are often the best way to go.
Customer Acquisition Cost (CAC) vs. Customer Lifetime Value (CLV)
If the cost to acquire a new customer is significantly higher than the lifetime value they bring, businesses may want to shift focus toward retention.
Optimising CAC and enhancing CLV can lead to healthier profit margins: each business should examine these metrics to decide exactly where to allocate resources wisely.
Current Churn Rate
A high customer churn rate indicates that customers are leaving at an unsustainable pace. In such cases, prioritising retention efforts is essential to stabilise the business and foster customer loyalty.
Identifying the reasons behind churn, such as dissatisfaction with products or services, can help inform strategies to improve retention.
On the other side, a low churn rate suggests that the business is successfully maintaining its customer base, allowing for more investment in acquisition strategies.
Feedback from Customers
Customer feedback is invaluable in shaping acquisition and retention strategies. Listening to customers through surveys, reviews, and direct interactions can provide insights into their needs and preferences.
This information can highlight areas for improvement in products or services, which can enhance customer satisfaction and loyalty.
By understanding their customers, businesses can make informed decisions about where to focus their efforts - whether it’s refining their offering to retain current customers or adjusting messaging to attract new ones.
How to balance customer acquisition and retention
Acquisition efforts help bring new customers into the fold, which is essential for expanding market reach and increasing revenue.
However, retention is also crucial: as previously mentioned, it’s often more cost-effective to keep existing customers than acquire new ones. A balanced approach can maximise profits and also enhance brand reputation and customer loyalty.
Striking the right balance allows businesses to create a sustainable growth model that leverages the strengths of both strategies.
Actionable tips: how to balance customer acquisition and retention
- Run Acquisition Campaigns with a Retention Focus
Design acquisition marketing campaigns that also highlight your commitment to customer satisfaction. For example, promotions can include messages about excellent customer service or loyalty rewards for future purchases.
This way, new customers feel valued from the outset and are more likely to return, especially if you complete the offering with outstanding customer loyalty programs.
- Implement Retention Efforts Early
Begin retention marketing strategies as soon as a customer makes their first purchase. Welcome emails, onboarding sessions, or exclusive offers can help build a connection and encourage repeat business.
This proactive approach increases the lifetime value of each customer right from the start.
- Cross-Promote Between New and Existing Customers
Use your marketing channels to promote products or services that appeal to both new and existing customers.
For instance, highlight testimonials from loyal customers in acquisition campaigns to build trust and showcase the benefits of your offerings.
A great way to do this would be a referral loyalty program: if you want to learn more about this, you can check out our complete guide to referral marketing.
- Measure and Analyse Metrics
Continuously track metrics such as customer acquisition cost and customer lifetime value to gauge the effectiveness of your strategies.
Regular analysis will help you adjust your approach to ensure that both acquisition and retention efforts are optimised.
That’s why it helps to have an analytics system that can provide you with meaningful insights at your fingertips.
Tools to help manage both strategies
Here you'll find some tools that will help you manage both strategies to achieve the success you want for your business.
Customer Relationship Management (CRM) Systems
A CRM can help track customer interactions, preferences, and purchase history, allowing businesses to tailor both acquisition and retention efforts effectively.
Email Marketing Platforms
Use email marketing tools to nurture leads through targeted campaigns that focus on both attracting new customers and keeping existing ones engaged with relevant content and promotions.
Loyalty Programs
Implementing a loyalty program can incentivise repeat purchases from existing customers while simultaneously attracting new ones.
Promote your customer loyalty program during acquisition campaigns to highlight the added value of becoming a customer.
Integrating these approaches ensures a steady stream of new customers while nurturing existing relationships, ultimately driving profitability and sustainability.
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Sara Rabolini
Content Marketing Executive
Sara is our Content Marketing Executive. She shares engaging and informative content, helping businesses stay up-to-date with the latest trends and best practices in loyalty...