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Customer Acquisition vs. Customer Retention: Which is More Important?

customer acquisition vs. retention

Regardless of the size of your organization, acquiring customers and then retaining them is the cornerstone of any business. But when it comes to customer acquisition vs. retention, which one is worth investing more time, effort and resources into?

Obviously, a repeat customer who already knows and trusts your brand is likely to contribute more to the long-term success of your business than a new customer who is yet to show any real loyalty.

However, no business can enjoy a healthy pool of existing customers without acquiring them first – sort of like the “chicken or the egg” conundrum!

In reality, it’s about finding a balance between customer acquisition vs. retention that works well for your business. So, how much should you prioritize each of these approaches? Let’s consider the points listed below.

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1. Which Customers Spend More?

coins in jar with plant sprouting

Statistically, repeat customers spend more – and not just for the simple fact that they return to your business time and time again.

The reason that existing customers consistently spend more with any business, regardless of industry, is three-fold:

  • Higher frequency of visit (loyal customers visit your business more often)
  • Larger average transaction value (they spend more per transaction)
  • Greater lifetime value (loyal customers will continuously shop with your brand for an extended period of time)

These key reasons (and a few more which we’ll discuss in the coming points) are why 80% of your future profits will come from just 20% of your existing customers.

2. Which Customers are Easier to Sell to?

Brand trust is not built over a single transaction. A new customer might research your product or service beforehand; only committing to the purchase once they are satisfied with peer reviews and other content.

However, whether or not they become a repeat customer hinges on their experience with the product or service. Customer retention and brand loyalty can only be achieved through a quality product and (at the very least) acceptable service.

If a business consistently manages to provide an exceptional brand experience time and time again, the customer’s trust in the business grows exponentially. An emotional connection is developed, and perhaps this is why repeat customers are 50% more likely to try new products.

Repeat customers are generally more eager to have a say in the direction of the business, through honest feedback in response to new products being trialled, new marketing techniques and so on.

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3. Which Customers Cost Less?

calculating costs

One of the most popular statistics in loyalty marketing is that acquiring a new customer costs anywhere from five to 25 times more than retaining an existing one.

According toHarvard Business Review, increasing customer retention by 2% works out the same as cutting costs by 10%. So, in short, repeat customers cost far less than new ones do.

An easy way to calculate a specific dollar amount for how much you are spending on customer acquisition is to add up all your sales and marketing costs, and divide that number by the amount of newly acquired customers. Subtract this number from the average spend of these new customers, and you’ll get your ROI.

Repeat customers still present sales and marketing costs, but loyalty marketing is far cheaper than customer acquisition marketing.

Why?

  • You already know the customer
  • They already trust your brand
  • Your business can send much more targeted communications, and tailor your marketing to appeal to the customer’s unique preferences

This is called personalization, and it plays an integral role in loyalty marketing.

4. Which Customers will Advocate Your Brand?

This one should be fairly obvious. A brand new customer can’t be as effective an ambassador for your brand, because they don’t have as much experience with the product, or with the business in general.

Repeat customers refer at least 50% more people than one-time buyers do (Bain & Company).

From word-of-mouth marketing, online reviews and other user-generated content, your existing customer base will bring you new business in the form of referrals and brand advocacy.

No form of traditional advertising can stand up to the power of an endorsement from a neutral third-party source, which is why word-of-mouth marketing continues to be one of the most effective forms of customer acquisition to this day.

5. Which Customers Digitally Engage Your Brand More?

social media apps

When it comes to social media marketing, repeat customers are much more likely to engage with your brand on social media, share your content and generally help you reach a wider online audience.

If your business has a digital loyalty program, you can actually incentivize your existing customers to help you acquire new ones by rewarding behaviour such as:

  • Writing product reviews
  • Sharing brand-sponsored content
  • Referring friends and family
  • Participating in social media-based competitions and prize draws
  • Creating user-generated content that promotes the brand (blogs, YouTube tutorials, podcasts, etc.)

Cosmetics giant Sephora has proven itself to be quite adept at this.

Customer Acquisition vs. Retention: Final Thoughts

Obviously, I’ve made a clear case here that customer retention is far more important to your company’s ongoing success than customer acquisition. The trust, loyalty and advocacy that a repeat customer provides is simply too valuable an asset for any business to neglect in favour of trying to win new customers.

However, customer acquisition is of course a vital component of any business’s marketing strategies. The key is balance. Thankfully, there are resources available that will take care of your customer retention and brand loyalty efforts for you, so that your business can focus its acquisition efforts.

A digital loyalty app is a fantastic way to engage your existing customers with targeted communications, enticing gamification mechanisms and tailored rewards, for a highly personalized brand experience that is unique to them.

Get in touch with Stamp Me Loyalty Solutions today, to start a discussion on how we can provide your business with an efficient, convenient and cost-effective solution to your customer retention and brand loyalty goals.

Stamp Me provides loyalty solutions to businesses large and small, from our own Customer Loyalty App to fully customised loyalty and rewards programs for enterprises and brands.

Contact us if you would like to discuss a loyalty or rewards solution for your business or brand.

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