Multiple research studies have shown that existing customers are your most critical asset for your business especially in difficult economic times when leads are hard to come by. However, it is also important to recognize that customer acquisition plays a significant role in growing your business. They are both important but how do you know the optimal time to invest and dedicate the necessary resources in order to achieve your growth objectives. There are a number of variables to consider such as actual customer acquisition cost, your long term business goals, your overall business model and customer churn. Customer retention vs customer acquisition is a hearty debate in progress and the answer can be somewhat complex. There are various schools of thought and both come with their own costs, challenges and opportunities. Consider this. Without acquisition, there will be no new customers and hence nobody to retain. Without retention, the cost of conducting business will escalate as companies are forced to spend money acquiring new customers to replace those who leave. To keep your business up and running profitably, you need a healthy mix of each, as well as a strategic plan that maps out costs and tactics to achieve this goal.
According to Ali Cudby, who is CEO of Your Iconic Brand, a marketing firm based in Indianapolis, that works with customers to improve customer retention. “It’s never either/or,” says Cudby, who is also author of the upcoming book Keep Your Customers and adjunct professor of entrepreneurship at Purdue University. Rather, she says, both need to be priorities.
Let’s examine some numbers according to a research conducted by Invesp:
The reality is both are equally significant and require different strategies but customer retention accelerates revenue growth and profitability. New customer acquisition can be very costly whereas retention focuses on already acquired customers who, if they are satisfied with a brand’s products and services, will spend more per transaction and conduct more frequent shopping transactions. Loyal customers will also refer family, friends and colleagues which makes customer retention even more important as this comes at no new customer acquisition cost for the brand or retailer. Your current customers are more familiar with your products, trust you and are 50% more likely to try new products and spend 31% more. Also, providing exceptional customer service to your existing customers is much more certain than investing scarce marketing and sales resources with the hope of acquiring new customers. This does not mean stop investing in marketing and sales to acquire new customers, this simply means be sure and dedicate the right amount of resources to retain your most valuable and profitable customers as an ongoing and prioritized business strategy.
As a matter of fact, acquisition grows your customer base and retention grows your customer’s lifetime value (CLTV). A strong customer retention program will maximize CLTV. In order to retain your most valuable customers, you must establish trust by delivering great customer service and high quality products. This is only the foundation for your business and you must establish a very strategic and cohesive loyalty program that is experiential in nature and provides high perceived value. If you do this, then your most valuable customers will become brand evangelists and advocate for your brand wherever they go. Also, and equally important, when something goes wrong (and something will, at some point, definitely go wrong), these loyal customers are much more forgiving.
To evaluate which approach is best for you, ask yourself these questions based on your current strategy:
New businesses should invest in acquiring new customers as a means to build a solid and reliable customer base. Once your business has a significant number of customers and you have been able to gather insightful data, this is where customer retention comes in. Implementing a customer segmentation strategy is one of the best ways to meet your customers’ needs and provide them with more personalized and engaging customer experiences. Identifying your most valuable and profitable customers is essential. Do some research and data mining to understand how to turn customers into loyal customers who recognize and appreciate the value they receive from the brand and in return, will be pleased to spend more and engage more with your brand.
It is also crucial to keep providing your customers with positive brand experiences, meaningful content and high perceived value. This will leave more customers feeling very satisfied and delighted with your brand thus making them your most loyal and valuable customers. Once your company gains more awareness with a strong customer base, it will likely become easier and less costly to acquire more new customers.