Acquisition Vs Retention: Holding onto Customers in an Environment of Rising Costs
As inflation continues to make everything increasingly expensive, retailers are finding themselves under rising pressure to achieve more with less. And, while gaining new customers is certainly still important, retaining the ones you already have is often significantly more cost-effective.
While specific figures vary from industry to industry, it is estimated that acquiring a new customer can be up to five times more expensive to a company than retaining one they already have. When you think about it, the reasons for this are obvious. A new customer needs to be led through the entire sales funnel – from brand discovery to completing a purchase – whereas an existing customer only needs to be reminded about your offerings.
A new customer will have little to no knowledge of your brand which means your marketing budget will be devoted to opening a relationships with them, communicating what you do and how you can solve their problem, and why you’re the best brand to do so.
Customer Retention
"Why such a huge difference? When it comes to new customers, remember that you are basically starting from scratch,” says SaaS provider Paddle. "They likely have no previous experience with your brand and may not even trust your company. It takes time and money to interest them in your product, and even more time and money to convince them to buy from you. With current customers, you don't have to fight against as many barriers to the transaction.”
Whilst customer acquisition grows your customer base and market share – both important factors in business – retention facilitates growth through a customer’s lifetime value. It’s fairly logical that a customer who makes repeat purchases over a projected period of time is going to be more valuable than one who makes a single purchase and is never seen again.
Not only is repeat business good for your company in and of itself, but retained customers are also far more likely to act as brand advocates and spread the word to family and friends of their good experiences with you. Research has shown that 92% of global consumers trust the referral of a friend or family member over any form of corporate advertising.
Customer retention also helps reduce churn rates, which helps with periphery factors such as demand forecasting.
"Keeping customers is a matter of delivering on your promises to solve problems and helping customers continue to see the value you deliver throughout their customer lifetime,” says TechTarget. "This is incredibly valuable because customers who repeat their purchases help to keep your revenue numbers stable and predictable by reducing churn rates, which helps you forecast more accurately.”
ROI
When we are considering any kind of marketing strategy, it always comes down to which options give us the greatest return on our investment. This is true even during times of prosperity, never mind the environment of rising process and spiraling cost of living in which we find ourselves at the moment.
Without a doubt, customer retention provides the greatest ROI out of it and customer acquisition. Because of the high upfront costs of acquiring new customers – depending on the size of that initial order – it can often be the case that they do not even become profitable until they have made multiple purchases with your brand, and it can take months or even years before they generate desirable returns. This is why, according to one study, just a 5% increase in retention rates may result in a staggering profit increase of 95%.
You cannot take retention for granted either. Thanks to the proliferation of the online world, it is easier than ever for customers to shop around on a purchase-to-purchase basis. This means you need to keep them engaged through various marketing channels and make sure your brand is first in their minds when they are thinking about a second purchase. This can be a difficult balance to achieve as you want to remain prominent in their minds without becoming annoying.
This isn’t to say you should ignore customer acquisition in times such as these, but we believe your focus should be on retention and the significantly greater ROI it can achieve.
Final Thoughts
Retention clearly beats out acquisition when it comes to the greatest return on your marketing investment. However, while certainly less costly, achieving customer loyalty and retention in a world where you are jostling for attention in a crowded online market is no mean feat.
Customer acquisition and retention in the current economic climate is sure to be part of the conversation at eTail Boston 2023, being held in August at the Sheraton Boston Hotel.
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