Customer Acquisition vs Customer Retention: Which is More Important?

By Jessica Day

Service providers, such as large corporations and small businesses, spend significant time and money acquiring new customers. Marketing strategies are implemented to boost the number of people aware of the company’s services or products. This always results in more revenue for the business, right? Wrong.

Many companies forget that it’s not only what you sell, it’s who you keep. In fact, acquiring a new customer can be up to seven times more expensive than retaining an existing one. The fact of the matter is, if you don’t make an effort to keep your old customers happy, they will become your ex-customers very quickly. 

While both customer acquisition and retention are important for success in business, which should be prioritized?

The question of customer acquisition vs customer retention is difficult to answer unequivocally because it depends on numerous factors, including the size and type of business, the industry, and the customer base. As a result, there’s no definite answer. But in this post, we’ll attempt to compare and contrast the two strategies and help you conclude which is more important for your business.

Customer Acquisition

Customer acquisition is the process of attracting new customers. It includes marketing, advertising, and promotion to build brand awareness. 

The ultimate goal of customer acquisition is to gain profits in the short term (customers who are willing to pay for products or services). Businesses gain new customers by advertising their products/services through different media channels, such as television, radio, social media, and email.

How much does customer acquisition cost?

The cost of acquiring a new customer varies based on the size and type of business, the industry, marketing strategy, media channels used, etc. For example, the average cost of acquiring new customers through email marketing is $9 – $1,000 per month if a business self-manages their campaigns or $300 – $500 per month if they work with an agency.

Top tips for customer acquisition:

1. Know your customer: It’s important to know who your target audience is so that you can market to them effectively. Say you’re selling a cloud based phone system for small business owners. Your target market would likely be the principal decision-maker at businesses looking for an affordable yet efficient phone system. You would then advertise in publications and websites popular among this group.
2. Use a variety of media channels: Advertising through various channels will help to reach more people. The average social media user engages with an average of 6.6 various social media platforms. With this in mind, it’s important to ensure that you’re incorporating omnichannel techniques into your marketing strategy.  
3. Make it easy for customers to purchase your product/service: Have a user-friendly website and offer multiple payment options.
4. Follow up with customers: Thank them for their purchase and ask for feedback to improve your services/products. If products aren’t meeting customers’ needs, offer a refund or exchange. Then do some quality assurance testing to make sure the problem is fixed.
5. Keep your advertising fresh: Change your marketing materials regularly to keep things interesting.

Benefits of customer acquisition:

• Brands grow by expanding their customer bases.
• Increases revenue and profit.
• Gives businesses a competitive advantage over others in the same industry through differentiated offerings and market differentiation.

Challenges of customer acquisition:

• Customers must be found first. This is not always easy, especially considering that there are so many potential customers out there to choose from.
• Can be costly and time-consuming if it fails. Marketing budgets must allocate money toward attracting new customers, which can only fund the project for a limited amount of time before another strategy needs to be implemented or financial resources transferred elsewhere. Failing to successfully acquire customers results in a financial loss.
• New competitors are constantly entering the market, which could render customer acquisition efforts obsolete.

Customer Retention

The goal of customer retention is to keep current customers happy so that they continue doing business with you. There are many ways to achieve this, including: 

• Providing excellent customer service
• Working to resolve any complaints or issues quickly and efficiently
• Offering discounts or other incentives to loyal customers
• Getting to know your clients personally so that you can provide them with the best possible service 
• Focusing on high-quality products rather than being competitively priced.

How much does customer retention cost?

Calculating retention costs is not easy.  The cost of retaining your customers includes the “cost of doing business”. I.e., costs that are unavoidable no matter how well you run your company, such as rent, utility bills, administration fees, etc.

This is in addition to costs associated with customer retention activities (such as sending out personalized birthday cards) and lost customers (the revenue you lose when a customer leaves and is not replaced).

There are a number of metrics that can be used to track customer retention costs. For example, customer churn, revenue churn, and repeat purchase ratio.

Top tips for customer retention:

1. Turn unhappy customers into loyal ones: Customers are more likely to return or even refer your business to others if you care about their concerns and do everything in your power to resolve them.
2. Build relationships with customers and clients: The more that existing customers know about who you are and how they can benefit from doing business with your company, the more loyal they’ll remain. 

Utilizing data is a useful way to build relationships with your customers. Make sure you define zero-party data collection goals, then determine how both external sources and existing tools can help you achieve them. This will not only give you information about the kinds of questions your customers are asking, but it will also show you what they want to know about your brand.

1. Act quickly: It’s important to be responsive and handle complaints or other issues right away so they don’t escalate into bigger problems that may discourage customers from continuing to shop with you. 
2. Use customer feedback to improve your business: Being open to hearing what your clients have to say about their experiences with your store is essential for knowing how you can better serve them in the future. 

Don’t just respond to comments like ‘best headphones for conference calls‘ or ‘cheapest printer service’. Take time to follow up on inquiries or questions that are critical of your company and implement any changes needed to better meet customer needs.

1. Offer incentives/discounts based on loyalty: Offering rewards for repeat business is a highly effective strategy for keeping existing customers coming back again and again. 

Let’s say your company sells business phone systems, you could discount the cost of VoIP phones for customers that have been with you for a certain number of years, or give them free shipping on orders above a certain dollar amount.

Benefits of customer retention:

• Increases revenue and profit. By initiating repeat sales, you are essentially getting the customers to bring in more money than they originally did. If they buy two products instead of one or recommend your company to someone else who ends up buying from you, this can mean big bucks for your business.
• Decreases costs associated with finding new customers. The less time and effort it takes to attract new clients, the less money is spent on these efforts. When customers stick around for a long time, there is no need to launch desperate campaigns to find new ones.
• Your existing customer base becomes your best marketing tool. These individuals are already familiar with your brand and will likely not hesitate to recommend you to their friends and family. Word-of-mouth marketing is incredibly powerful, and it costs you nothing to generate.

Challenges of customer retention:

• It can be more difficult to keep existing customers happy than it is to attract new ones. They may take your business for granted or become complacent, expecting the same level of service even if they ‘re not being as polite or respectful as they should be.
• Can be costly and time-consuming if it fails. Maintaining customer satisfaction requires effort on your part, and if you let things slide, then you run the risk of losing them forever. This takes time and money that could be put toward other initiatives.
• Customers may leave for a variety of reasons, such as being unhappy with a recent change you made, not feeling appreciated or valued, no longer needing your product or service, etc.

Customer Acquisition vs Customer Retention: What’s More Important?

Customer acquisition vs customer retention is a tough conundrum, as it depends on a variety of factors specific to your business. However, in general, it can be said that customer acquisition is more important in the early stages of your company’s development, while customer retention becomes increasingly important as you mature. 

It is also important to note that neither strategy can succeed without the other—customer acquisition cannot succeed without customer retention, and customer retention is pointless if you do not have any customers in the first place!

Final Thoughts 

So there you have it, the ins and outs of customer acquisition vs customer retention. Both are essential for a business to grow and succeed, but they require different strategies and approaches. 

It’s important to tailor your efforts to fit the needs of your company and to switch things up as needed. Keep an open mind, be flexible, and most importantly, never stop working on customer satisfaction!

About the Author

Jessica Day is the Senior Director for Marketing Strategy at Dialpad, a modern business communications platform that takes every kind of conversation to the next level—turning conversations into opportunities and improving customer relationships with features like Dialpad small business phone systems. Jessica is an expert in collaborating with multifunctional teams to execute and optimize marketing efforts, for both company and client campaigns. Here is her LinkedIn.