Customer Retention and Acquisition: Weighing the Costs and Benefits
Customer acquisition and customer retention: Two different concepts, but both extremely valuable for building your business. Yet, with sometimes limited staffing and budgets, it can be challenging to know which one to invest in and prioritize. Comparing the differences between customer retention and customer acquisition costs may be essential in deciding where to direct your valuable time, energy, and resources.
How do customer retention and customer acquisition differ?
Before we compare some vital stats, let's first get into customer acquisition and retention and the critical differences between them. Customer acquisition is the process and methods your business uses to get prospective customers to buy your products or services. Customer retention, on the other hand, involves marketing to people who are already customers and finding ways to persuade them to continue purchasing your products and services.
Given the different target audiences for customer acquisition and retention, it may be no surprise that businesses often use other channels for both. According to Invesp, the top channels marketers use for acquiring new customers include paid search (used by 86%), online display ads (85%), and organic SEO (66%). The top online channels for retention marketing are mobile messaging (used by 58% of marketers), email (52%), and mobile app (44%), with the most effective methods being email marketing (56%), social media marketing (37%), and content marketing (32%).
The cost difference between customer retention and acquisition
With the variety of channels used, 70% of marketers believe that customer retention is significantly cheaper than customer acquisition. And the data supports this: Customer acquisition can cost 5x more than customer retention.
Despite the available data around the costs and greater returns behind customer retention initiatives, companies still put a stronger focus on customer acquisition. In fact, 26% more companies place emphasis on customer acquisition over customer retention.
Yet, the payoff for customer retention is significant. A 5% increase in customer retention can deliver profit increases of 25-95%. This could be attributed to the fact that not only are existing customers 50% more likely to buy new products from you; they’re also more likely to spend 31% more than newly acquired customers.
Customer retention is vital in fierce competition for business
Given the lower cost to retain customers (compared to acquisition), the higher ROI, and the overall better position you’re in when marketing to someone whose attention you've already gotten, making customer retention a priority pays in dividends.
With a whopping 96% of customers citing customer service as a major driving factor in their loyalty to a brand, excellent customer experience is key to retaining customers.
However, customer retention is becoming increasingly complex, with 39% of consumers switching brands or retailers during the pandemic — 79% of whom are still open to looking at other brands.
In order for businesses to better compete in this tough market, the numbers show it’s worthwhile to take a look at your customer retention strategies and ways to strengthen the overall customer experience to bring increased service and value to customers and keep them loyal to your brand.
Want to discover how better customer support can assist with increasing customer retention? Get in touch.