Customer Acquisition Vs Customer Retention

Published: 11 February 2015

To acquire or retain… That is the question. To find out if new or existing customers are the most valuable to your business, and where you should focus your efforts, we’ve weighed up the pros and cons.

Whether to focus on customer acquisition or retention is a time-old debate, which continues to split the views of business professionals. Times are changing, competition is growing and buyer trends are shifting. For these reasons, it is more important than ever for businesses to understand what yields the best results.

Customer Acquisition

Great importance is often placed upon acquiring new customers, it’s seen as a quick and effective way of increasing sales revenue. However, in reality it can take longer and costs up to seven times more than retaining an existing customer. Customer acquisition is necessary, but it cannot work in isolation. Of course, all businesses need to attract new customers, but once a customer is gained, focus should be given to retaining that customer and developing a long-term relationship with them. Building strong relationships with your customers is another way of acquiring more customers through referrals.

Key Point: Customer acquisition is vital to grow.

Benefits of Retaining

Selling to customers you already have a relationship with can be more cost effective and efficient than acquiring new customers, just as Natalie Issa said, “It’s always more cost effective to re-market to existing customers rather than attract, educate, and convert new ones. The fact that these customers have already demonstrated an interest in your offerings and are engaged with your brand gives you an advantage that you’d be mistaken not to capitalize on.”

To create loyal customers it is important to understand why they buy from you. By getting to know your customers you can begin to anticipate future needs and provide products and services that are “attractive”. Utilise data to fuel loyalty strategies and improve customer experiences, which will help your business grow. What’s more, by providing outstanding customer experience your customers will recommend you to friends, family and colleagues.

Michael Gazala on Forrester.com states, “In 2015, the race from good to great CX [customer experience] will hit the gas pedal. Smart CX teams will increasingly use customer data from diverse sources like social listening platforms, campaign management platforms, mobile apps and loyalty programs – to personalize and tailor experiences in real time so that they inherently adapt to the needs, wants, and behaviors of individual customers.”

Retention may appear to be a longer, slower process, but retention is a sustainable business model, something we discussed on Freshbusinessthinking.com.

Key Point: Customer retention is key to sustainable growth.

Important Stats:

  • It has been shown over and over again that 80% of a company’s future profits will come from 20% of their customers.*
  • Increasing customer retention by 5% can lead to an increase in profits of 25%-95%*
  • The likelihood of converting an existing customer into a repeat customer is 60-70%*
  • The likelihood of converting a new lead is 5-20%*
  • 61% of customers take their business to a competitor when they end a business relationship**
  • 71% of consumers have ended their relationship with a company due to poor customer service**
  • Globally, the average value of a lost customer is £161**
  • 63% of marketers felt that new customer acquisition is the most important advertising goal**

So, What’s The Answer?

Do not focus solely on either acquisition or retention, as neither can work in isolation, just as Jay Karsandas stated on Smallbusiness.co.uk, “The majority of businesses look at marketing channels to be ‘either’ acquisition or retention, but I would suggest you rethink your individual channels as being neither. Having the fence in between is the problem that creates silos…”

To increase success rates, it’s important to understand where you are now – what activity is most effective for your business? What is the current split of sales revenue between new and existing customers? Once you have this data, you can calculate the cost and impact of uplifting revenue from your existing base, compared with the cost and impact of lead generation activity to decide on a suitable strategy to achieve this.

You might also be interested in our blog post, Top Tips for Retaining Customers.

*Huify
**KissMetrics

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