Customer Retention vs. Acquisition: What You Should Know

Conventional marketing wisdom would tell you to acquire and conquer, but is that really true? Turns out, a successful eCommerce company relies on more than just a rapidly-growing customer base. While customer acquisition has been a fan favorite for the majority of business owners, customer retention also plays an important role in boosting revenue — but in a different way than you might think.

If you’ve been wondering which strategy is more deserving of your time and money, this is the article for you. En garde!

What Is Customer Acquisition?

Are you brand spanking new to running an online business? Then your focus will likely be on customer acquisition, or the process of gaining customers using a variety of methods you’re probably already familiar with.

Customer acquisition can encompass:

Even if your business is not brand spanking new, chances are that customer acquisition is still your top of mind. After all, it’s pretty much impossible to expand your business without expanding your business. Get it? Okay, fair enough — that wasn’t very punny. Basically, we’re saying that a growing company (usually) needs a growing clientele.

So, what’s the downside? Well, customer acquisition is expensive — specifically, 5 times pricier than customer retention (which we’ll get into in a moment!). Not only that, it’s considerably harder to convert new customers than it is to sell to existing ones. Lastly, while customer acquisition is optimal for quickly building metrics, these metrics may not always be the best indicators of overall longevity.

What Is Customer Retention?

If customer acquisition is the process of gaining customers, customer retention is the process of keeping them. Think about your favorite, longstanding company — sure, they may get an influx of new shoppers every day, but it’s their core customer base that has been responsible for sustaining them over the years. 

Unlike customer acquisition, customer retention takes relatively longer to produce results. However, what customer retention lacks in instant gratification, it makes up for in other, huge ways.

Don’t believe us? Here are some fun facts…

  • Customer retention is cheaper and easier. Selling to a preexisting customer has a success rate of 60 to 70%, as opposed to a rate of 5 to 20% for a new customer.
  • Customer retention grows lifetime value, or LVT. Repeat customers will make repeat purchases and have a tendency to spend more per order.
  • Customer retention yields a higher return on investment, or ROI. Studies have shown that increasing customer retention rates by 5% has the ability to increase profits by 25 to 95%.
  • Customer retention is a reliable way to measure your company’s mission. Trust isn’t built overnight, which means loyal customers are typically indicative of a quality brand that provides tangible value to others. Instant gratification is definitely satisfying, but so is knowing you’re positively impacting people’s lives!

And, if that wasn’t enough, customer retention can actually lead to customer acquisition! Word of mouth is one of the most effective marketing strategies out there, and happy customers are highly likely to spread the gospel. 

Which One Is Right for Me?

Truth be told… they’re both great strategies! Yup, we’re going for the diplomatic take here, but a mix of both customer retention and customer acquisition hits the sweet spot for most businesses. Of course, we’re not the type to leave you hanging, so let’s break this down a little further.

Customer acquisition is good for….

  • Startups and small businesses looking to grow
  • Companies with higher budgets and revenue goals

Customer retention is good for…

  • Businesses of all sizes who are looking for or are reliant on positive customer relations
  • Companies with lower budgets and revenue goals

But, like we said, the majority of businesses would be better off incorporating both strategies. Every company is unique, and there are no hard and fast rules to customer retention and acquisition ratios. If money ain’t no thang, we encourage you to experiment and see what works best for you.

Questions, concerns, feedback? None of the above? Contact us! We’re here to help.

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