Customer Retention vs Customer Acquisition

September 21, 2022
Customer Retention

If you are in the world of sales and marketing, you would have been part of the debate – Whether to give more emphasis on customer acquisition or customer retention? The discussion is still widespread as to which one of these two strategies the businesses should opt for. The question may seem simple and straightforward to a layman, but the answer is not that simple.

There is no doubt that you have to focus on acquiring customers to grow a business. However, in the growth journey, retaining them is equally important. So let us understand both the terms in great detail and understand the pros and cons of each, so you can decide what you need to focus on.

What is Customer Retention?

The term customer retention describes the art of retaining a customer. Every business aims to gain new customers in order to grow. The other way is by ensuring you get repeat purchases from existing customers.

The higher the customer retention, the more the chances of your business growing faster. In fact, 65% of a company's business is derived from its existing customers.

Retaining customers is not as tough as a new business owner might think. You can have higher customer retention if you master providing an excellent customer experience. It is one of the basic requirements for customer retention. The other factors that help you retain customers are a perfect onboarding plan, building confidence and trust in customers' hearts, and reaching them regularly to ensure you can figure out what they are looking for.

If your customer retention percentage increases, you will also see the customer satisfaction graph growing. Hence, both are interrelated since only a satisfied customer will stick around and come back to you whenever he needs the service.

Pros Customer Retention

  1. A Retention-centric Business Stands Out from the Crowd - Businesses often focus on customer acquisition, and if the business is retention-centric, it should stand out from the crowd. This is because when business starts focusing more on customer service and is more honest about their product and services, they gradually leverage personalization.
  2. Retention is five times cheaper than acquisition - It is common knowledge that it is more cost-effective to hold on to the customer than bring in a new customer. It costs up to 7x more to acquire any new customer when compared to the cost to retain an old one. Consequently, you can grow your business at a lower cost with customer retention.
  3. Earn More Word-of-Mouth Referrals - When the customers are loyal to you, they care about the acquisition part through the referrals. Studies have shown that 92% of consumers trust referrals from friends and family.
  4. Engaged Customers Provide More Feedback - Every business needs to improve to grow, and the best way to improve is through the feedback of customers. Engaged customers come to you with feedback which, most times, is priceless.
  5. Customers Will Welcome Your Marketing - The problem for most businesses is that no one likes to be marketed to, and companies have to market their products and services. The only set of people who like to be marketed is loyal customers. Loyal customers spend 67% more than new ones. They are more likely to respond to your brand's promotional offers, and in fact, they appreciate you reaching them.
  6. The Results From Acquisition are Temporary - The money spent and the efforts undertaken for customer acquisition give only temporary results. In every new cycle, you need to spend more money to acquire new customers if the previous customers are not retained properly.

Cons Of Customer Retention

  1. New customers may be overlooked - If the business start focusing too much on customer retention, the focus could shift from new a customer, which is never good for the business.
  2. Requires a detailed strategy - Customer retention is tough; you need to plan how to personalize the communications at each stage of the customer's lifecycle and optimize your customer strategies.
  3. Right loyalty programs - Creating the right loyalty program that works for you is time-consuming, and hence sometimes, it may be costly to come up with the best customer retention plan.

What Is Customer Acquisition?

It is a process in which you focus on acquiring new customers. You focus on the lead generation process to attract new clients and convert them into paying customers. Obviously, you cannot be labeled a successful business if you are not acquiring new clients. The business which has just started needs to acquire customers faster as they don't have a customer retention strategy.

Pros Of Customer Acquisition

  1. Helps Increase your business - The only way to grow business is to get in more customers. So you have to focus on customer acquisition irrespective of the stage you are doing business.
  2. Can easily be done with paid channels - There are multiple channels such as e-mail marketing, social media marketing, and in-app recommendations to acquire new customers or at least get the leads.
  3. Increases Brand Awareness - You have to reach a much higher number of potential customers to convert a few to paying customers. Through the customer acquisition process, you increase your brand awareness.
  4. Helps Businesses Increase Sales and Profits - More customers directly translates to higher sales which further translates to higher profit. You can use these profits to grow much faster, and for that reason, you should always focus on acquiring customers.

Cons Of Customer Acquisition

  1. Acquisition overall is costly - The customer acquisition process is costly as the conversion rates are usually low. Depending on your business, it could be between 1 to 10%. Hence, you need to put in continuous funds to grow.
  2. Acquisition results are temporary - The efforts and money spent on acquiring the customers are temporary. For example, in a particular month if a certain amount is paid to Facebook to generate new leads. Next month you need to spend more money on the same process as the visitors of last month might not be reachable to convert them into repeat customers.
  3. It can create financial fallout issues - As mentioned above, the customer acquisition process is not easy, and the benefits of strategy may not be at the speed owners expect. In the worst-case scenario, it never falls in place. The business may lose huge money without the required gains in such cases.


So, should you be focusing more on Customer Acquisition or Customer Retention?

The business that is just starting should focus more on acquiring customers. Also, businesses with fewer repurchase products, such as shoes, should focus more on acquisition. Companies that have already established themselves should focus on customer retention more. However, the keyword in the above statements is MORE. It is not wise to ignore either of the two.

Statistics say that only 40% of companies and 30% of agencies have an equal focus on both acquisition and retention. Both have their merits and demerits, as we have discussed above. It would be best if you try to find a balance that works best for your business.

Conclusion

To sum up, both customer acquisition and customer retention are necessary for your business to grow and succeed. The end game is to acquire clients and keep them - that's the goal.

If you are starting your business you should focus more on acquiring customers. But once you have sufficient customer base, you should also give more importance to getting more business out of existing customers.

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