There’s a long-running debate in the world of sales and marketing: Should you focus on customer acquisition or customer retention? It’s a simple question, but it doesn’t have a simple answer.
This really depends on your business model and growth strategy, but the fact remains that both acquisition and retention are critical to running a successful business – for very different reasons.
In this post, we’re going to take a deep dive into the customer acquisition vs. customer retention debate, and how your business can strike the right balance.
When consumers are searching for a product or service, they go through a process of narrowing down the available options to choose the most appropriate vendor. This is referred to as ‘the customer journey’, and involves a number of steps:
Awareness (recognizing that a need or a pain point exists)
Consideration (gathering information and weighing up alternatives)
Purchase (making the final decision via either a physical or online store)
Retention (being persuaded to purchase again in the future)
Advocacy (recommending the brand and its products to others)
Customer acquisition focuses on the first three steps listed above; it’s the process of attracting new customers to your business via successful lead generation and nurturing strategies that convert lookers into buyers.
It helps you to grow your customer base
Without customer acquisition taking place, it’s impossible to grow into new markets or take advantage of expansion opportunities. For businesses who’ve only just entered the marketplace, an aggressive acquisition strategy is essential to raise brand awareness and boost sales.
It’s easy to see results
Customer acquisition is a straightforward metric for businesses to define – all you need to know is whether a customer is buying from you for the first time! This can be done in real-time via tools such as Google Analytics, making it easy to track whether your current acquisition strategy is bearing fruit.
It’s costly to maintain
It’s no secret that customer acquisition strategies are incredibly costly for businesses – both in terms of time and money. The reason is because acquisition requires consistent outreach in form of paid ads, giveaways, content marketing, events, and other types of lead generation to see results. This quickly becomes a big drain on your resources – especially if aren’t maximizing the potential of each new customer (see below).
It has a short life span
It’s not unusual for companies to dedicate all of their marketing spend towards acquiring customers, leaving very little to support retention. But when acquisition efforts aren’t combined with a viable strategy to drive repeat purchases, the ROI goes down dramatically. In fact, acquisition typically costs around five times more than retention. Why? Because you’ve effectively spent a lot of money generating a mass of one-off customers – thus raising customer churn and giving your business little long-term benefit.
Customer retention is an approach that maximizes repeat purchases and minimizes customer churn. This is accomplished through a mixture of strategies designed to nurture customers back into your sales funnel following their initial purchase, such as:
Customer loyalty programs
Segmented email marketing
Branded delivery experiences
Customer retention differs from customer acquisition in that it focuses on both the purchase AND post-purchase phases of the customer journey; it aims to demonstrate that your brand is genuinely invested in giving consumers a high level of value – even after the transaction has taken place.
Because you’re working with leads that have already been converted, customer retention strategies offer considerably better ROI than customer acquisition. According to the book Marketing Metrics, the odds of an existing customer buying from you is 60-70% – compared with just 5-20% for new customers.
The reason why is simple; you’ve already laid the groundwork! it’s far easier to engage an audience who you’ve already been won over in a previous sales cycle, as opposed to ‘cold’ leads who know little about your brand.
It fosters customer loyalty
When you make the effort to take care of your customers both during and after a sale, this massively enhances the customer experience and increases the odds of repeat purchases. Plus, it’s no secret that loyal, long-term customers spend more on average than those who’ve only recently been acquired – 67% more on average!
It’s a source of free brand ambassadors
Let’s look back to those two final steps in the customer journey listed above. Because when retention is done right, your customers quite literally start doing your marketing for you; they become advocates for your brand. Over time, this will help to reduce your initial customer acquisition costs as word of mouth takes hold – thus lowering your overall marketing costs even further.
Here’s the thing – there really aren’t any downsides to nurturing one-time customers into ongoing supporters of your brand!
The fact is that the longer you can retain a customer, the less the maintenance of that relationship is going to cost you. Unlike with customer acquisition, you aren’t stuck in a cycle of trying to win over skeptical consumers over and again (with relatively low odds of success.) Just like a fine wine, your ROI will get more valuable over time.
So, back to the first question – customer acquisition or customer retention?
The answer to this depends on what stage of growth your ecommerce business is at. If you’re a brand-new merchant, spreading brand awareness via customer acquisition is naturally going to be your top priority. But if you’re a well-established vendor, you could be losing out on a lot of valuable sales by not investing more heavily in retention strategies that help to foster customer loyalty.
However, it’s important to remember that acquisition and retention aren’t mutually exclusive; every healthy business needs a strong combination of both if they’re going to be successful. Through the use of smart retention strategies, you can maximize the ROI of your acquisition efforts – thus creating an expanding base of loyal repeat customers that provide a long-term boost in revenue.