Your past customers are a huge asset to your business, so it’s crucial to maintain a strong relationship with your past and existing clients so they stay loyal.
And yet many small businesses spend most of their marketing dollars on finding new customers instead of nurturing the ones they already have. It’s an ongoing struggle as you think about your business goals.
Not convinced? For many business owners, hard facts are worth more than anecdotes and assumptions. Read the customer retention and acquisition stats below to see the differences between the two.
For any business, acquiring new customers is essential for growth. However retaining existing customers is equally critical to ensure sustainability and profitability. Companies that master balancing customer retention and acquisition reap significant rewards. Let’s examine the unique value both strategies offer and how to optimize investment in each.
Why Existing Customers Are Valuable
Loyal customers provide many inherent benefits:
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Increased revenue Statistics show retaining customers boosts revenue Even a 5% rise in retention grows profits 25-95%
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Referrals Satisfied customers refer others, generating word-of-mouth promotion. This is powerful acquisition that costs little
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Cross-selling opportunities: Current customers are more open to trying a company’s new products or services.
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Higher lifetime value: Loyal customers spend more over time. Their lifetime value exceeds that of one-time buyers.
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Lower costs: Maintaining customers requires fewer resources than attracting new ones. Service and support for existing clients is more cost-effective.
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Insights: Companies gain helpful data on purchasing trends and feedback from current customers that aid in improvement.
Clearly, retaining the right customers delivers significant financial benefit compared to constantly seeking new ones.
Why New Customers Remain Essential
However, focusing solely on retention can restrict growth. Here’s why acquiring new customers matters:
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Wider reach: New clients increase brand awareness and market share. This supports continued expansion.
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Prevents stagnation: New customers bring fresh perspectives that can spark innovation.
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Backfills churn: Acquisition offsets the natural churn of clients leaving. This maintains revenue streams.
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Promotes adaptation: Attracting different demographics keeps the business aligned with evolving consumer behaviors and needs.
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Boosts word-of-mouth: More customers mean more potential referrals.
While retaining customers supports profits, new acquisition is vital to progress. Striking the optimal balance is key.
Challenges of Customer Acquisition
Attracting new customers has clear value, but carries more costs:
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Research: Companies invest in understanding their target audience for effective messaging.
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Advertising: Promotions, ads, and content creation require significant marketing spend.
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Lead conversion: Sales teams expend time and effort converting leads to paying customers.
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Onboarding: Resources are needed to integrate new clients into the business.
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Delayed returns: Acquiring customers delays profitability due to upfront costs.
These expenditures make acquisition five to 25 times more expensive per customer than retention on average. There’s immense incentive to retain once acquired.
Best Practices for Retaining Customers
Here are proven strategies to improve retention:
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Superior service: Make support readily available and resolve issues quickly.
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Loyalty programs: Offer rewards, discounts or free products to recognize valuable customers.
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Personalization: Use data and segmentation to tailor messaging and offers to specific customers.
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Surveys: Routinely ask for feedback to guide improvements catered to customers.
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Consistency: Deliver consistent quality and reinforce brand identity during every interaction.
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Proactive communication: Keep customers informed regarding new offerings, industry trends and company news.
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Simplify: Reduce friction by streamlining purchase, onboarding, billing and support processes.
When customers feel valued, listened to, and empowered, sustainable bonds form.
Optimizing Acquisition Strategy
Here are tips for acquiring customers more efficiently:
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Define target customers: Clarify the ideal buyer profile to focus efforts on qualified leads who will find long-term value.
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Leverage referrals: Reward existing customers for referrals with discounts or loyalty perks to generate high-quality word-of-mouth leads.
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Refine messaging: Ensure brand messaging and content resonates with each target customer segment.
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Monitor conversion: Track acquisition funnels to identify and improve areas with high fallout.
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Review ROI: Assess historical return on investment by source to optimize marketing spend on the most profitable channels.
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Automate: Use technology like CRMs to automate lead nurturing and provide a personalized buying experience.
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Welcome new customers: Make onboarding smooth and engage new customers to build loyalty post-purchase.
Strategic acquisition increases efficiency in converting and retaining new customers.
Weighing Lifetime Value
To determine appropriate investment levels, assess customer lifetime value (CLV):
Calculate CLV = Average Order Value X Purchase Frequency X Average Customer Lifespan
This estimates the net profit a typical customer generates over their tenure. Compare CLV to customer acquisition cost and retention cost to guide spending strategy.
Acquiring customers with high CLV justifies greater upfront investment. Lower CLV customers warrant more focus on maximizing retention. Developing retention and pricing strategies that align to CLV is advisable.
Key Takeaways on Balancing Customers
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Retaining profitable customers generates recurring revenue at lower costs than new acquisition.
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Acquiring new customers remains essential to expand reach, prevent stagnation, and backfill churn.
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Reducing customer churn even modestly boosts profitability thanks to retention’s leverage effect.
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Acquisition costs are high but necessary to sustain growth. Optimizing marketing and conversion maximizes ROI.
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Calculate customer lifetime value and costs to determine appropriate investment in each area.
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An integrated strategy focused on maximizing CLV across both retained and newly acquired clients is ideal for overall profitability.
The most successful customer-centric businesses continuously evaluate how to best divide resources between acquisition activities that gain new customers and retention efforts that maximize existing ones. Making informed, strategic investments in both fuels growth and profitability over the long-term.
Customer acquisition & retention marketing stats
- Acquiring a new customer can cost five times more than retaining an existing customer.
- Increasing customer retention by 5% can increase profits from 25-95%.
- The success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%.
- One customer experience agency found loyal customers are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering.
- U.S. companies lose $136.8 billion per year due to avoidable consumer switching.
- American Express found 33% of customers will consider switching companies after just one instance of poor customer service.
The data shows us that retaining customers is just as important as, if not more important than, acquiring new ones. So why do so many businesses focus mostly on acquisition and neglect marketing that keeps customers loyal?
The Cost of Losing a Customer | Customer Acquisition vs. Customer Retention
Is retaining a customer cheaper than acquiring a new customer?
I’d like to remind you that retaining a customer is much cheaper than acquiring a new customer. In fact, studies suggest that depending on the industry you are in, acquiring a new customer can cost five to seven times more than retaining an old one.
How important is customer retention?
If you’re not convinced that retaining customers is so valuable, consider research done by Frederick Reichheld of Bain & Company (the inventor of the net promoter score) that shows increasing customer retention rates by 5% increases profits by 25% to 95%.
Is retaining customers better than acquisition?
Retaining existing customers is a much more sustainable practice than acquisition, which can feed into a company’s ESG score. Like all things in business, it mostly comes down to the bottom line. Retaining customers is cheaper and provides better long-term gain than acquisition.
Should you focus on customer retention or customer acquisition?
If you haven’t picked up on it yet, here’s the verdict: Focusing on customer retention over customer acquisition is the best decision for most businesses. You’ll always need both, but the thing that sets retention apart is that, over time, it can become a powerful source of customer acquisition in its own right.
