Balancing Customer Acquisition Vs. Customer Retention

Every business needs to understand the importance of attracting and retaining customers. With limited time and money, however, should the bulk of your resources go toward nurturing client relationships — or building new ones? Both are necessary for long-term growth. But what is the optimal balance of customer acquisition vs. customer retention for your organization?

Case for Customer Retention

For years, conventional wisdom has said that customer retention is more profitable than acquisition. There are plenty of stats to back this claim:

  • Past customers have up to a 70% chance of converting again-compared to 20% for new prospects
  • Increasing customer retention rates by just 5% can boost profits by up to 95%
  • Customer retention is between five to 25 times less expensive than trying to attract new users

With numbers like these, any business could be forgiven for slanting all of its marketing efforts toward retaining the customers it already has. After all, if new users are more expensive to find and harder to convert, why even go after them?

Case for Customer Acquisition

Without a steady stream of new customers, your business cannot and will not grow in the long run. Even if you have super eager users who remain actively engaged with your products and services, their numbers are guaranteed to shrink over time.

With each new email blast, for example, some unknown percentage of recipients will unsubscribe. This isn’t limited to email. Similar attrition rates exist across all marketing channels, including:

  • Social media
  • Print advertising
  • Direct mail

However, there are other reasons why customer acquisition isn’t something any business can afford to ignore.

For example, it’s possible that your current users represent a very narrow market. By focusing exclusively on their needs, you may be missing out on much larger opportunities.

Moreover, customer retention is only an option if you already have customers to retain. This certainly isn’t the case for new businesses. Startups have no choice but to focus 100% of their energy on acquisition if they want to get their ventures off the ground.

Similar limitations exist for other types of businesses, including those specializing in:

  • Real estate
  • College degrees
  • Pool installations

For most customers, these are usually one-off purchases that don’t lead to repeat business.

What is the ideal formula for your organization?

Finding the Optimal Balance for Your Business

Every industry/business is unique, so there are no universal guidelines that will apply in all cases. A guideline is to start by devoting roughly 60% of your resources toward customer retention. One of the best channels for doing this is email marketing, which allows you to share discounts, promotions, and product launches with those who have already purchased from you (and will likely buy again).

Better still, email marketing is easy to automate with the right software. This makes customer retention even more cost-effective than it already is.

The remaining 40% of your marketing budget should go toward advertising, social media, and SEO. These are the primary channels through which new users are most likely to discover your products and services.

As a business owner, you need to actively monitor your results over time. Doing so allows you to make the necessary adjustments so that you can eventually find the ideal balance between your customer acquisition and retention efforts.

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