Customer Acquisition vs Customer Retention: What Makes More Sense?

by / ⠀Finding Customers Startup Advice / July 15, 2020
Customer Acquisition vs Customer Retention: What Makes More Sense?

What should you focus on in terms of strategy as a B2C company, customer acquisition or customer retention? Judging by how often this question is posted online, there doesn’t seem to be a clear-cut answer.

Proponents of acquisition argue that having more customers will lead to a higher volume of sales. While this is true in the strict sense of the word, this doesn’t mean that companies focusing on acquisition will necessarily have a higher volume of sales overall.

Proponents of retention claim that it’s more worthwhile to extract value from the same customer twice, than it is to sell to two people. But then the question becomes how can you grow as a company if you’re constantly selling to the same people.

Since there is no consensus on which approach works better, common sense dictates that you should try to cover your bases and utilize both approaches at the same time. But even doing this has its own share of pitfalls. If you don’t devote enough resources to each strategy, you will end up with a slowly expanding customer pool with a tendency to evaporate over time.

So which approach makes the most sense? Should you go for acquisition, retention, or some combination of both?

For every B2C company, there is a sweet-spot somewhere in the range between full acquisition and full retention. But in order to find this point, you have to explore the whole range first. And to make your job easier, the remainder of this article will cover both approaches, as well as their combined form.

Strategies that Focus on Customer Acquisition

Customer acquisition is a systematic endeavor to acquire new customers. This process can be further subdivided into two stages. The first stage is concerned with creating and developing interest for your brand and products through marketing. After that comes the second phase, during which an attempt is made to convert leads into paying customers. Customer acquisition is heavily dependent on digital marketing and its ability to generate interest for your brand via ads, organic reach, email, and other channels.

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The reason why B2C companies utilize customer acquisition as a strategy is twofold. One, it is a strategy that is inherently scalable – sending 1,000 emails is the same as sending 10,000 from a technical perspective. Two, it is a strategy that doesn’t require much upfront investment. Thanks to marketing automation technology, it is easier than ever to reach customers no matter what their online habits are.

A strategy focused on customer acquisition will help you find more selling opportunities. The strategy works particularly well if you’re launching an innovative product or service. With enough customer research, even a single marketing campaign will be enough to generate interest for your brand online. This won’t directly translate into sales, but if your reach is wide enough, the number will work in your favor.

With all that being said, customer acquisition is not a foolproof method for increasing revenue. The reason has less to do with strategy, and more with consumer psychology. Customer interest changes over time, and if you fail to keep pace, you may find that your acquisition pipeline has suddenly run dry. And you can be sure that your competitors will seize this opportunity to sway your customers away from you.

Strategies that Focus on Retention

Customer retention is a strategy diametrically opposed to customer acquisition. It’s main goal is to keep the same group of customers continuously involved with your brand. The logic here is that more intimate relationships with customers will create more selling opportunities over time. To achieve this kind of relationship you need to provide a memorable customer experience through the entirety of the customers’ journey.

Just as strategies focused on acquisition employ a variety of marketing tactics to achieve its goal, strategies focused on retention utilize a variety of methods for getting on the customers’ good side. For instance, some companies create tutorial content for their products and services, and then deliver it to customers via their website and blog. Other companies take a proactive approach and try to communicate with customers directly via telephone or live chat. Others yet provide special offers and discounts to long-standing customers, ensuring their patronage in the future.

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What makes customer retention strategies appealing is their price. According to recent data, it costs 5 times as much on average to acquire a new customer than it does to retain one. This shouldn’t surprise us, since a lot of the costs associated with customer acquisition come from market research – you always want to be in the know regarding market trends and fluctuations in order to adapt your approach accordingly. In contrast, once you’re done analyzing your existing customer base, you can employ retention tactics without the need for additional research.

Customer retention definitely works, but is it viable to use it to the exclusion of everything else? Not quite. For one, a retention based approach to customers is only possible through the combined effort of marketing, sales, and customer service departments. The coordination required to make this work can be challenging to achieve. Focusing on retention exclusively can also stifle business growth – if you’re constantly selling the same product to the same people, where will your profit come from?

Strategies That Combine Customer Acquisition and Retention

While some companies exclusively focus on either acquisition or retention, most will combine elements of both. This approach has good intuitive sense – if either extreme is flawed, the solution probably lies somewhere in the middle. But there is a third option – combining customer acquisition with customer retention.

The role of customer acquisition in this kind of combined strategy is still to attract leads. But the emphasis here is on quality rather than quantity. What you want to do is focus on finding leads that fit carefully specified criteria. This means using customer segmentation and content personalization to their full extent. You want to attract leads that match your ideal customer profile, and then approach them with personalized content.

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As for customer retention, the goal is not to keep as many customers around as possible, but to nurture your relationship with ones that matter over time. To put it industry jargon, you have to work towards improving your customer lifetime value. This requires close cooperation between your sales, marketing, and customer service departments.

Strategies that combine acquisition with retention are not new in the B2C sector – large corporations such as Google, Facebook, and Amazon have been using them for years. What’s new today is the fact that even small and mid-sized businesses can now leverage this strategy thanks to technology such as CRM software.

CRM tools will help you improve customer retention by keeping your customer data organized and accessible. This makes it easy to craft personalized customer journeys from lead to repeat customer. CRM software will also help your customer acquisition efforts thanks to powerful marketing automation features.

A Holistic Approach to Customer Success

Customer acquisition and customer retention are both valid approaches for improving your bottom line. However, each of them comes with downsides that limit their usefulness in many scenarios. It is therefore more beneficial to combine the two approaches in order to harness their benefits more effectively while minimizing downsides. Technologies such as CRM are vital here, as they enable you to adopt a holistic approach to customer success.

Related Post: Customer Care: Developing Mutual Understanding

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Daniel Bishop

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