Customer Acquisition vs Customer Retention: The Value of Returning Customers

Whether you should focus more on customer acquisition or retention is an age-old debate in sales and marketing. Most companies will prioritise acquisition by investing heavily in generating new leads and setting periodic KPIs for sales teams to drive growth.

Retention seems to take more of a back seat, with less incentives for long-term success and often less investment overall – despite retention being the more sustainable priority. But which is more important? Let's weigh up the pros and cons of each to understand what your business should zero in on. But first, check out these stats:

Stat 1: Acquiring a new customer can cost around 5 times more than retaining an existing customer.

Stat 2: Increasing customer retention by only 5% can increase your profits by more than 25%.

Stat 3: The likelihood of selling to an existing customer is 60-70%, while the probability of selling to a new customer is between 5-20%.

What is customer acquisition?

During the first stages of the buyer's journey (awareness, consideration and purchase), consumers are narrowing down their options and choosing the most appropriate fit for their needs. It’s during these initial stages that customer acquisition comes in, with the goal of attracting new customers to their business. This is done through successful lead generation and nurture strategies that convert prospects into buyers.

The pros of customer acquisition:

• Growing your customer base is critical, especially if you’re running a new business. By investing in a robust acquisition strategy, you’ll be able to boost your brand awareness and increase sales.

• Results are easy to measure. You can track new customer data in real-time using tools like Google Analytics, to ensure your strategy is paying off.
  
  

The cons of customer acquisition:

• It’s expensive. The time, resources and money that goes into attracting new customers can become very costly, primarily because it requires consistent outreach. If unsuccessful, the compounding financial loss can have a detrimental effect on business.

• Without retention strategies in place, acquisition has a short lifespan. Generating a large number of one-off or short-term customers effectively means you’ve spent a lot of money, only to raise customer churn with no long term benefit.
  
  

What is customer retention?

Customer retention focuses more on the later stages of the buyer’s journey (retention and advocacy), and these stages rely heavily on the customer experience. This approach makes the most of repeat purchases and aims to reduce churn. By combining strategies designed to bring customers back into the sales funnel, they’ll eventually become loyal brand ambassadors for your business.

The pros of customer retention:

• It’s more cost-effective. You’re no longer trying to convince a new lead, but instead you’re working with customers who already know your brand. Because of this existing foundation, you require less resources to encourage repeat purchases.

• It increases customer loyalty. Improving the customer experience beyond the sales process will increase the chances of your customers coming back. Your most loyal customers will become brand advocates, and over time this will reduce your initial acquisition costs through word of mouth.
  
  

The cons of customer retention:

• Growth might be slower. One of the only downsides to prioritising customer retention is that it takes time to deliver successful outcomes. Nurturing your customers into loyal brand advocates takes longer than getting a new customer over the line. However, this can lead to exponential growth in the long run, as more of your loyal customers help to lower your overall marketing costs through referrals.
  
  

The verdict: Focus on retention for sustainable ROI

Focusing on customer retention and allocating more resources to ensure repeat sales has only become a priority for business over the last 10 years. While customer acquisition is still a critical part of any growing business, effective retention will increase your customer lifetime value, which ultimately improves the bottom line.

By using smart customer retention strategies and optimising the customer experience, you’ll be able to maximise the ROI of your acquisition strategies and drive even more growth.

However, enhancing the focus on retention requires a cultural and operational shift. According to Forbes: “In addition to redefining internal performance metrics so that every saved customer is as big a win as a new sale, this requires nurturing the customer success mindset and building a customer-centric culture across the organisation.”

Growing your business beyond 2022 means taking care of your existing customer base and providing an experience worth coming back for. While it might take a little bit longer to see the results, you’ll create a feedback loop where every new and existing customer adds more sustainable value and growth to your business.