Customer Acquisition vs Customer Retention – which wins?

Whether you are a big or small company, solving the customer acquisition vs customer retention dilemma is essential for success. But, not everyone has unlimited resources to invest equally on both sides and avoid risks. There are situations where you need to decide what has the priority, so you will be able to allocate resources properly. Even though it seems like a simple decision, it’s far from simple. Acquisition can be a vital factor, especially if you are just starting. However, retention is a long and sure path to success, that should not be underestimated nor neglected. That’s why focusing on one thing only can be an extremely bad decision if you plan to run a successful business.

Where to focus: Customer Acquisition vs Customer Retention

One of the nondefinite answers would be that it strongly depends on the industry and your business model. While this is the truth, it’s not the only aspect to observe. In reality, many small businesses focus primarily on customer acquisition. Of course, this helps them kickstart their business, but can be a huge mistake in the long run. Without a proper plan to retain existing customers, they end up always chasing new prospects. As a result, strategizing about how to improve conversion rate is often misplaced because acquisition and retention generate growth in different ways. To attract, convert, retain, and convert again, they need to understand the similarities and differences. And, in addition, how each aspect is affecting a business on every level.

What is customer acquisition?

As the name implies, customer acquisition is a process of acquiring new customers. It includes different strategies and methods to attract valuable prospects. All in the effort of converting them to customers. The main goal of customer acquisition is, therefore, to increase the initial number of “consumers”.

What is customer retention?

Once you get customers, the next goal is to keep them. In a sense, the goal is to persuade your prospects to continue cooperation, after the first conversion. For this reason, businesses who invest in maintaining a good relationship with their existing customers, have more chance to succeed in the long run. Because, loyal prospects who use your service/product constantly, bring more value to your business than one-time consumers.

How they work together for your business

There are numerous proofs where acquisition and retention intertwine. For example:

• First, you implement a strategy to convert leads to customers. After providing quality service, your relationship and trust increase.
• Second, thanks to the quality of service, you increase the chance your one-time customer will become a returning customer. For that, you use different retention strategies.
• Finally, and this is the crucial part, your regular customer recommends your business to others. By working closely together, both acquisition and retention boost each other and themselves.

And this is only one example that demonstrates why and how acquisition and retention are both vital for a business. The reputation you build this way can improve your business operations significantly. Especially today where everyone can share a word of mouth through social media and business networks.

The differences between Customer Acquisition and Customer Retention

Like everything else in the business world, customer acquisition and customer retention have their own pros and cons. To better understand when to focus, and how, let’s discuss a few major ones.

Customer acquisition is more financially demanding

According to different researches, customer acquisition can cost up to five times higher than customer retention. This means you will need to invest a lot more money into getting new, than trying to keep the existing customers. The reason for this is that a new customer has no existing experience and impression about your business. Unless it comes through referrals. Of course, today we have numerous solutions, like click-to-call software, that can considerably reduce the costs. And, speed up the entire process. But, in the end, the acquisition will still require more investment and effort than if you focus on existing customers.

Acquisition metrics are quicker but somewhat questionable

A good thing about customer acquisition strategies is that they give quick results of their own success. This means you can easily monitor the number of freshly acquired customers without a problem. However, they may not be always a proper indicator of the potential success of your business in the future.

The reason for this is that there are soo many metrics to follow, but some of them often don’t provide relevant results. At least, not relevant to the ultimate goal, and that is the overall profit. This usually happens when they are not observed correctly.

For example, you may think that your business strategy is working because you have a high daily influx of visitors on your website. But, how many of those visitors actually end up making a purchase. And, how many of those make a purchase again. The numbers that these metrics show may indicate that you are making a progress, but not necessarily. Basically, some of them are not giving the right insight into what will result in the future so you can adjust your strategies properly.

Retention has more long-term potential

With the profit, not the revenue, being the ultimate measure of success, customer retention has a better impact. Only a small percentage in the increase in retention rates can double your profit. For example, investing in the exit-intent popup software can be a cost-effective option. You invest much less money to remind customers of offers and events but create a much larger potential for earning. When you look at the ROI (Return On Investment), this is doubtfully something you should disregard.

Customer retention is more budget-friendly

While both acquisition and retention should be a part of long-term planning, not everyone can invest in both. If you don’t have a considerable budget, focusing more on retention might be a less risky option. Businesses with limited budgets can start with the acquisition, and shift later on retention to balance the budget. Considering the percentual advantage it provides, after initial investing, retention will give you more in return. For example, here are a few statistics that confirm the effectiveness:

• The success of selling to existing customers goes up to 70%. On the other side, the chance to sell to new customers ranges between 5-20%.
• You have about 5 times more chance to get repurchase from loyal customers.
• New customers are more likely (about 30%) to switch between companies when looking for services/products.

Final thoughts

In an ideal situation, businesses should focus equally on both. Some more than others, depending on the industry and factors like the maturity of your business. But, for the best conversion rates, it’s necessary to balance. While Customer Acquisition vs Customer Retention is a constant dilemma, straying too far on one side will not give proper results. Ultimately, you need a constant influx of new customers with a minimum loss of existing, if you want to maximize the profit.

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