Customer Acquisition vs Customer Retention: Which Strategy to Choose?
Which is more crucial to you: gaining new clients or retaining the existing ones? Customer acquisition is an integral part of developing any business. That's obvious. Meanwhile, customer retention is inevitable if you operate a subscription-based business or have repeat clients.
So which tactic should you invest more energy in when implementing your growth strategy? To get the answer, you need to consider a wide range of variables, including customer acquisition cost, your business model, your long-term business aims, and more.
Today we'll help you understand each of the two tactics thoroughly and know which one can improve your current business situation.
What is Customer Acquisition?
Customer acquisition refers to gaining new customers for your business. The objective of this process is to build a systematic, sustainable acquisition strategy that can develop with new changes and trends. Customer acquisition plays a vital part in businesses of any age and size. It enables your business to:
- Earn money to pay costs, pay employees, and reinvest in development
- Indicate evidence of traction for outside parties like partners, influencers, and investors
If a company can systematically appeal and convert new clients, it will stay healthy and growing.
What is Customer Retention?
Customer retention is the list of activities a business creates to raise the number of repeat clients and to boost the profitability of each current customer.
An effective customer retention strategy allows you to offer and extract more value from your current customer base. You want to make sure that the customers you try to retain have a good experience and receive value from your products.
In brief, acquisition generates a foundation of customers, while your retention strategy means creating customer relationships and maximizing revenue for each one.
Customer Acquisition Boosts Growth
Every CEO and business owner will suggest that you should fill your sales funnel with leads on a regular basis. In fact, your business cannot grow without acquiring new customers.
You will always get customer churn. ProfitWell shows that the average churn rate for SaaS companies is about 4.8%. That means customer acquisition will always be an important element to maintain and grow a business.
To have the most efficient growth strategies, successful businesses consider both the growth objectives and the realities of the resourcing and staffing. Then, the leaders define customer acquisition goals that are perfectly timed and supported by the whole organization.
Customer Retention Generates Sustainability
While acquiring new customers for your business boosts growth, retaining clients can reinforce the stability and sustainability of your company.
Retaining a client means retaining revenue or generating a source of recurring revenue for your organization. Recurring revenue allows a company to allot resources more precisely, plan better, and grow your business more efficiently. A recurring revenue model leads to more precise forecasting, thereby enhances the quality and speed of decision-making within the organization.
Another advantage of customer retention is the effect it has on your internal team. If you're aware that a customer will need your product or service every month, you can accurately apportion resources to that customer and have an effective plan for your team's capacity.
Hence, you can have more informed decisions, such as where you should invest in your team and the resources you need to bring to your customers and boost your development appropriately.
How to Acquire Customers
Customer acquisition marketing strategies can cover a large range of media, including prospecting, referrals, cold calling, sponsorships, joint ventures, radio advertising, display advertising, TV advertising, print advertising, digital advertising, and direct email.
What you need to do is to define your customer or your market. Therefore you won't waste your time and effort marketing to some segments that have hardly interest in your business. For instance, a company selling pork might not want to advertise their products in a vegan magazine.
Besides, you also want to stay away from marketing in an oversaturated market where there is too much competition. If you really want to step into this market, you should provide a unique and innovative service or product that stands out from the crowd.
There are various strategies for different mediums. For example, to get new customers via direct email advertising, you need to have a mailing list broker to look for customer databases that are suitable for your business. In addition, you also need an agency to help you drill down to recognize your potential clients.
How to Retain Customers
Customer retention is a separate field to customer acquisition as you're not interacting with a cold prospect. You market to those who have already had transactions with you. You will make them happy, keep them being paid clients, and encourage them to spend more on your products.
Regarding customer retention, the key thing is to comprehend your customers' demands and requirements and fulfill these needs. If you run a subscription-based business, you want to make them satisfied by offering them a quality product or service.
In a competitive market, you should provide more value, such as loyalty programs, bonuses, and special customer perks. Besides, you can raise a customer's value by upselling them with premium products, cross-selling them with similar items, reducing prices, or expanding deliverables.
Customer Acquisition: Potential Pitfalls
We all know that you need to obtain new customers to scale your business. Nevertheless, a lot of companies use too many resources for customer acquisition, not enough for customer retention.
If you gain a new customer but do not make sure they will use your product or service, you're likely to lose them soon. It's essential to offer a world-class customer experience from the beginning. This can decrease customer churn and promote customer satisfaction and renewal rates. Notably, Invesp shows that acquiring a new customer costs five to ten times than retaining a current one.
As you gain a new customer, you should solidify their trust in your capabilities to support and assist them. If you have a new customer and then leave them to fend for themselves, you will have unhappy clients who will probably leave you quickly.
As a new customer comes on board, make sure that you offer a high-quality and professional onboarding and training program to guarantee their success.
Customer Retention: Benefits, Not Pitfalls
Let's have a look at these following statistics:
- Loyal, long-term customers pay more than new ones.
- 80% of a company's revenue is created by 20% of its current customer base.
- Boosting customer retention rates by 5% raises profits from 25% to 95%.
New customers need more administration and consume more resources. Meanwhile, happy, loyal customers who stick with you, in the long run, will help you make more precise revenue predictions. Additionally, you can grow and nurture closer relationships with customers to enhance trust, which makes sure they stay happy and loyal over the long haul.
So which should you focus more on: customer acquisition or customer retention?
Brand new businesses necessarily concentrate on customer acquisition to establish a customer base. However, when a new customer is obtained, customer retention becomes significantly vital.
The best way is to focus on each at the right time that benefits your company the most. Customer retention helps to position your organization for long-term sustainability, while customer acquisition can support balancing your customers and revenue churn.
If you want to share any viewpoints about the two tactics, please drop a line in the comment section below!