Customer Acquisition vs. Retention: Which One To Focus On

Customer acquisition vs. retention — where should you invest the most money, time, and effort? While, in theory, you ought to strike a balance between the two, reports on a 2023 survey by Optimove revealed that’s not always what happens. 

In fact, 54% of respondents admitted to using more than half their marketing budget to attract and convert new clients. 

On the flip side, the study shows that measures to keep regular buyers happy and coming back for more often take a backseat, with only 13% of participants claiming to give this aspect the attention it deserves.

Your business is unique and has its own specific scalability requirements, but the need for customers is universal. 

A synergic acquisition and retention plan with solid marketing strategies on both fronts is your best bet at achieving sustainable growth. Otherwise, you risk securing a constant influx of new customers while failing to cultivate strong relationships with existing ones, or vice versa.

What Is Customer Acquisition?

Customer acquisition encompasses all the actions you can take to find and hook potential customers, as well as the strategies to effectively manage them through the sales funnel. This vital aspect of the customer lifetime consists of the following stages:

• Awareness: This is where potential clients initially find out about you and your offering. To increase the visibility of your products or services, you can turn to traditional and digital advertising, public relations, search engine optimization, social media marketing, and more.
• Interest: Here, your prospective customers start doing their due diligence to find solutions to their pain points among what you sell. During this stage, your acquisition marketing efforts may include digital ads, newsletter subscriptions, and other informative assets.
• Consideration: At this point, your potential customers are on the verge of making a purchase decision. You should give them access to clear pricing information, social proof, insider testimonials, product comparisons, or any element that may persuade them to take the plunge.
• Conversion: This is the pinnacle of customer acquisition. It’s when your prospective clients turn into paying customers. To help seal the deal, you must offer them a smooth buying process and address any final concerns or objections.

What Is Customer Retention?

Now that you have customers, you need to keep them around. Customer retention — or the active efforts to reduce churn rates — typically involves these strategies:

• Enhancing customer experiences: Customer satisfaction should be one of your top concerns. Strive to offer excellent service and clear communication at all times.
• Offering loyalty programs: To take things one step further, reward loyal customers with exclusive discounts. You can also give them early access to new products or personalized experiences.
• Building solid bonds: Feeding a sense of community is a quick and effective route to winning the hearts and minds of your existing customers. Try engaging them through email marketing campaigns, like almost 90% of marketing leaders, or use social media interactions and personalized recommendations. 
• Seeking customer feedback: Showcasing your commitment to continued improvement can and will make your clientele feel seen and heard. Pay attention to what they have to say and act accordingly. 

The Return on Investment for Customer Acquisition vs. Retention

The ROI for these two aspects varies significantly depending on your industry's dynamics, market conditions, business models, customer management strategies, and numerous other factors — there's no general consensus or rule of thumb. In broad strokes, though, the financial gain for customer retention tends to be higher than that for customer acquisition.

Sure, the latter is crucial for getting your business off the ground. After all, there’s a limited pool of buyers to retain if you didn’t do the acquisition homework first. However, the reality is that customer acquisition costs can add up pretty quickly, especially as you shell out upfront marketing cash to draw in prospects without knowing for sure if and when they’ll convert.

The notion that customer acquisition can be five times more costly or yield up to 25% more profits than its counterpart seems to be an all-time favorite across publications. While this statistic is certainly outdated, it may still hold a little truth. Acquisition marketing initiatives often require substantial investments in advertising and outreach efforts.

Retention marketing primarily revolves around nurturing and solidifying your ties with current customers. 

These efforts can significantly boost your Customer Lifetime Value — the total revenue a customer generates throughout their relationship with your business. 

Plus, if you play your cards right, new customer acquisition will come organically through positive word-of-mouth. As a result, you’ll get a bigger bang for your buck.

A study by McKinsey shows that a median net retention rate (money earned from existing clients minus churn) of 120% can lead to a 20% annual growth without acquiring new customers at all. This may unlock greater valuation for your company, as investors see the stability and predictability of this growth model.

How To Balance Acquisition and Retention Efforts

Let's face it, a one-time purchase doesn't pay the bills for long. You actually depend on returning customers to build momentum and sustain your business over time. But you can’t retain customers you haven't acquired yet. That’s why you need a two-pronged strategy for enhanced customer management. Here are a few strategies to achieve this:

Work on Content Marketing

Offering content that educates, inspires, or entertains is a subtle approach to self-promotion that allows you to advertise your offering without coming across as too salesy. By creating blog posts, infographics, and tutorials, you can build awareness and interest for new customers and offer value to your most loyal patrons.

Invest in Technology

Nowadays, there are numerous specialized tools that can help you implement and manage customer acquisition and retention efforts. A CRM system, for example, enables you to:

• Keep tabs on customer interactions
• Identify churn risks
• Implement proactive retention effort

Automation has gained massive popularity within marketing technology (martech) processes, to the point where the two have become synonymous. Martech relies on tools that streamline communication, personalize interactions, and enhance customer experiences at various touchpoints along the customer lifecycle. 

Other common examples of automation in customer acquisition and retention are email marketing platforms, chatbots, predictive analytics and machine learning algorithms, and artificial intelligence-powered recommendation engines. These solutions, at the end of the day, help free up time and resources for other acquisition or retention strategies that require human intervention.

Divide Your Customer Base for Tailored Acquisition and Retention Efforts

Segmentation allows for targeted acquisition and retention strategies. For instance, you could offer loyalty rewards for high-value customers. 

Alternatively, try developing targeted ads with special discounts to attract new customers who share similar characteristics. Similarly, you could craft win-back campaigns with exclusive offers for dormant ones, rekindling their interest in your brand.

Boost Brand Visibility and Spark Conversations That Lead to Sale

Many struggle to decide whether to set their focus on acquiring new customers or retaining current ones. Naturally, the allure of a constant stream of new customers is undeniable. However, merely creating a revolving door of clientele can hinder your ability to guarantee sustainable growth. 

You should strive to use acquisition efforts and retention strategies in tandem to maximize the long-term value of your customer base. Fortunately, social selling lets you tackle both acquisition and retention initiatives. If you want to learn more about this approach, visit our site and reach out.