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What is more important, customer acquisition or retention?

For many businesses, it can be difficult to know what to focus their attention on and the battle between customer acquisition and customer retention is no exception. So which is more important? Is it better to focus on attracting new customers or giving current customers a reason to stay? Let’s explore.

The answer is actually that both are equally important for long-term business growth. However, many businesses focus mostly on marketing to new customers, forgetting to invest in customers who are already interested in their product or service. 

To help you understand the difference between acquisition and retention, as well as how to balance them, this article has all you need to know. 

What is customer acquisition?

Whenever a new person buys from your brand, they are an acquired customer. Customer acquisition is all about attracting prospective leads, nurturing them, and converting them into paying customers. You can’t guarantee that customers will be organically attracted to your brand so it’s crucial to have strategies in place that raise awareness and interest within your target audience. 

Typically, customer acquisition follows a three-step process as consumers move from the stages of awareness to consideration to decision making. At every stage, brands can ensure customers are interacting with content that will lead them closer to a purchase. 

But it doesn’t end when a customer buys your product or service, in fact, keeping them coming back for more is just as important. 

What is customer retention?

Once customers have invested in a brand, the goal should be to retain them and ensure they have a reason to stay invested. If customers are unsatisfied with the service, not having their needs met, or encounter problems, they’re not likely to stick around and the brand will have to make its money from newly acquired customers instead. However, if a brand manages to make customers feel valued and improve the Customer Experience, they’re more likely to have repeat customers.   

The retention rate of a brand measures how many customers remain loyal. The metric can be calculated for any business for any length of time. To calculate your brand’s retention rate, you need to keep track of the following: 

  • Total customers at the start of the given period (CS)
  • Total customers at the end of the given period (CE)
  • Total newly acquired customers during the given period (CN) 

Then use this formula: ((CE-CS)/CN) x 100 = ___%

Customer acquisition vs customer retention

It’s common for businesses to focus more on customer acquisition than on their existing customers because it’s easier to track and measure. Acquired customers can simply be tallied up, whereas retention is calculated with the above formula, and success is more subjective. However, customer retention is a vital factor of success and should not be neglected for the sake of new customers. 

Acquiring new customers costs 5-25 times more than caring for current customers and leads to a dramatic increase in profits. That’s why so many businesses are paying more and more attention to those people who are already converted, rather than spending all their budgets on new marketing. 

Existing customers already know the brand

One of the major advantages of focusing on your current customers is that they’re already converted. If someone has bought from a brand, they’re familiar with the values, benefits, and processes that new customers aren’t. So instead of spending time taking new customers through this process, why not spend it on building customer satisfaction with those who are already interested? This reduces customer churn, negative reviews, and stops you from wasting time on bad-fit prospects. 

Reducing customer churn 

The opposite of customer retention is customer churn, or the percentage of customers who stop investing in a brand within a particular time. For companies who spend all their time on marketing to new customers, their existing customers are likely walking out the door faster than new ones are coming in. Customer churn isn’t a cheerful metric but it is essential because it indicates how happy customers are when dealing with your brand. If your customer churn rate is high, there’s something that needs to be improved. It’s worth tapping into feedback to find out what those problems are and resolving them quickly because the fewer customers abandoning your brand, the healthier your revenue will be.

Customer Experience is everything

Customer acquisition is about drawing people into doing business with your brand with promises and guarantees about the entire Customer Experience (CX). Customer retention, on the other hand, is determined by how well those promises are kept. Consumers care about more than just products and services, nowadays they expect the entire experience with a brand to be of an increasingly high standard. While it is possible to persuade new customers with empty promises, the disappointment and frustration they feel when you don’t deliver are very damaging. The best strategy a brand can employ is to optimise Customer Experience and raise customer satisfaction. The happier current customers are, the more likely they are to come back and recommend your brand to others. 

Existing customers can attract new customers 

Promoting your brand can be challenging in this saturated market and it’s difficult to convince consumers that your brand will deliver what it claims. That’s why existing customers should be your number one focus. When your customers are happy, they’re likely to spread the word about your brand without even being asked to. This word-of-mouth advertising is far more effective than conventional marketing because it’s objective and relatable, meaning prospective customers can trust it. So, while you’re focusing on increasing customer retention and improving the Customer Experience, your satisfied customers will be helping with custom acquisition at the same time - win-win!

To improve your Customer Experience and reduce customer churn, the best thing you can do is listen to your customer’s feedback. This way you can be confident that you’re delivering exactly what customers want and need, keeping them invested for longer. 

For more practical advice, Review Tui has a comprehensive guide for implementing a customer feedback strategy that will lead you through the process. Or you can sign up for updates and invite-only access to our software launch later this year. 

Download our free customer feedback strategy guide