Customer Acquisition vs. Retention: Which You Should Focus On

September 4, 2023 by Christine

The debate about customer acquisition vs. retention has been going on for years. And many business owners have struggled to figure out which way to lean. According to survey data, 44% of businesses focus primarily on customer acquisition, whereas only 18% focus on retention. 

But here’s the thing…

Both customer acquisition and retention are essential for sustainability and growth in their own way. This makes it vital to understand the role each plays before deciding which to focus on and when.

So, let’s talk about customer acquisition vs. retention and why you should aim for both in your marketing strategy.

What Is Customer Acquisition vs. Retention?

Customer acquisition is the process of introducing new customers to your business. It involves using lead-generating tactics to attract prospects. Then, when those prospects are ready, you convert them into paying customers. 

Customer retention, on the other hand, is your business’s ability to retain existing customers over a period of time. Overall, it’s about taking steps to keep customers active, happy, and satisfied. That way, they’re more likely to keep buying from you again and again.

When it comes to customer acquisition vs. retention, the biggest difference is where your main priority lies—bringing in new customers or working to keep existing ones. But that’s not all. You also use different… 

• Methods (e.g., a lead generator vs. a customer loyalty program)
• Team members (e.g., marketing vs. customer support)
• Metrics (e.g., customer acquisition cost vs. customer churn rate)

Although there are differences between acquisition and retention, both are crucial to a business’s success. And yet, companies typically focus more on the former than the latter.

Why Most Businesses Value New Sales vs. Retention

As mentioned above, a high percentage of companies put more effort toward customer acquisition vs. retention. They dedicate a large portion of their resources to attracting and converting new customers. And chances are, your business does the same.

But why does all this effort go into sales?

1. It Results in Immediate Revenue Gains

Acquiring new customers who buy your products/services offers immediate revenue gains for your business. The rewards are quick and easy to measure since you see an increase in profits, which can be exciting. So, you’re more interested in generating new sales. 

With customer retention, the initiatives and methods used to keep customers happy and satisfied pay back over time. Basically, it’s a long-term play. But that means you likely won’t see a return on your investment for quite a while, which can be discouraging.

2. Lead Generation and Marketing Technologies Support Sales

Today’s lead generation and marketing technologies support customer acquisition vs. retention. For instance, technologies like SEO focus on increasing your business visibility to new prospects, which drives traffic to your website and converts them to paying customers. These technologies are designed to essentially acquire new customers instead of keeping existing ones active. So, companies that use them inevitably prioritize customer acquisition.

3. New Customers Are a Sign of Success

Customer acquisition can be difficult. However, if you’re able to keep bringing in new customers, you feel confident in your products/services. Moreover, you see how investing in sales and marketing effectively drives growth and success. 

Retention isn’t as easy to visualize. The metrics are harder to track, and retention efforts take a longer time to pay back. Plus, there’s an assumption that once you bring in a new customer, keeping them is the easy part.

Should You Prioritize Customer Acquisition or Retention?

There’s no straightforward answer to whether you should prioritize customer acquisition vs. retention. Each business is different and has unique needs, objectives, resources, and goals. But, ideally, you want to prioritize both at the same time. Remember, to successfully drive business growth, you must gain a steady number of prospects without losing existing customers.

Here’s why…

Customer Acquisition Is Expensive

According to research, customer acquisition is 5 times more expensive than customer retention. If your company constantly invests in customer acquisition strategies, it likely spends more money trying to convert prospects than it should. From hiring salespeople and advertising products/services to having a physical footprint that attracts customers, acquisition is not cheap.

It takes a lot of time, money, and effort to interest prospects in your business and convince them to buy. With current customers, you don’t have to fight against many barriers to keep them active since they’re already familiar with your brand, products, and services.

Retention Has Better ROI

The upfront costs that go into customer acquisition make most businesses unprofitable in the beginning. This is because you spend a lot to attract customers, and the sales you make don’t match. If you constantly repeat this, you may eventually cut into business profitability.

In contrast, studies show that increasing customer retention by 5% can increase business profits from 25% to 95%. With effective methods of retaining customers in place, the relationships your build and maintain can generate significant returns. This may not be immediate, but it’s worthwhile.

Retention Can Lead to Acquisition

Many businesses don’t realize that customer retention can lead to acquisition. When you deliver exceptional service and quality experience, you keep existing customers happy and active. Happy and satisfied customers are more likely to refer your business to friends, family, and relatives.

This word of mouth generates new leads for your company without losing the ones you already have. So, it’s a win-win for everyone, and you don’t have to spend a dime on lead generation and marketing tactics.

How to Strike a Balance with Both

Striking a balance between customer acquisition and retention can be difficult for most companies. There are various factors to consider, such as business goals, objectives, and budget, but prioritizing both can help you get more value from your marketing efforts.

That said, here are the steps you should take:

1. Create goals for revenue growth, solid targets, and a plan for achieving these. 
2. Develop a marketing strategy incorporating initiatives for acquisition and retention.
3. Execute your strategy using the resources at hand to enjoy steady, sustainable growth. 

Remember, you can grow revenue by increasing prices, increasing customers, or increasing products/services. Your business has to put effort into hitting your revenue goals through customer retention and acquisition methods.

Takeaway

When it comes to customer acquisition vs. retention, it’s clear that both are necessary if you want your business to succeed. Although your focus might lean more toward one side than the other at certain points, you shouldn’t constantly put all your eggs in one basket. Ultimately, we recommend finding better ways to figure out what the customer wants to buy and how best to get more of it to them. 

If you need help generating new leads, increasing sales, and driving growth, schedule a free consult with Viral Solutions today.

Filed Under: Business Tips Tagged With: growth, new customers, retention rate, ROI