21 Aug 2024 | By - Sudha Mariappan

You must have come across the words retention vs acquisition somewhere along your marketing journey. While it’s an important discussion going around in the marketing world, it becomes even more important to learn about retention and acquisition if you’re a business person.

Of all the questions facing business owners and marketers today, one of the most relevant is: should we continue to retain our existing customers or obtain new ones?

From experience, our team can confirm that a company will reach more people if it adopts both strategies. However, attaining the right mix between customer retention and acquisition is not always easy.

Through this blog, we’ll see and compare what works best to master the balance act and set your business up for long-term success.

What is Customer Retention?

Customer retention refers to the continuous activities targeted at getting customers to repeatedly come back to a business. It doesn't only mean that they shouldn't leave but also that a relationship which is built over time will grow stronger.

When talking about customer retention, we refer to strategies to get customers to stay with your brand, make repeated purchases, and be more engaged with the company at large.

Retention is what holds the business together in slow months and enables the loyal customer base to support the brand as advocates.

One practical example of how to retain customers is the subscription model of companies like Netflix. From personalized content to flawless user experience and continuous value for customers, Netflix keeps customers renewing their subscriptions month after month. This not only stabilizes revenue but also ensures long-term customer retention.

What is Customer Acquisition?

Customer acquisition is the process of developing methodologies that will attract new customers to your business. It comprises a set of activities and strategies designed towards increasing one's customer base and bringing in new streams of revenue. Acquisition is key to growth, especially in cases of expanding market share or entry into new markets.

The best case of customer acquisition would be how Amazon, the e-commerce giant, does it through targeted advertising, personalized recommendations, and competitive pricing. Its continuous expansion in customers testifies to the fact that their acquisition strategies are very effective.

Why are Both Retention and Acquisition important?

Customer acquisition and customer retention both are necessary for a healthy business. Retention makes sure that customers you fight hard to win, continue creating value for your business over time.

On the other hand, acquisition enables a business to exploit new markets and demographics, maintaining the dynamics of the business and increasing its revenue potential.

Working on one at the expense of the other is an imbalanced business strategy, which is likely to yield either stagnation or unsustainable growth.

Differences between Retention and Acquisition:

First off all, understanding how to balance retention and acquisition means looking at the key differences between them. These differences include:

1. Goals and objectives:

Customer retention has to do with keeping customers engaged and loyal to your brand. Some of the very basic objectives are an increase in Customer Lifetime Value (CLV) and a decrease in the churn rate.

It also tries to improve loyalty through constant engagement, which is achieved through personalized communication and insight into the needs of the customer.

On the other hand, customer acquisition deals with expanding your customer base. Its primary goals are raising awareness of the brand, generating leads, and then converting those leads into customers.

Acquisition efforts usually have a wider reach and are aimed at bringing in new customers who might or might not be aware of your brand.

For example, a Software as a Service (SaaS) business might be executing user retention strategies that include email campaigns with individually customized product recommendations.

At the same time, it would execute acquisition strategies with ad campaigns on social media or free trials for new customers.

2. Cost and ROI:

Among the greatest differences between retention and acquisition is in the cost. According to Forbes, it costs an organization five to seven times more to acquire a new customer compared to retaining an old one.

The reason is that acquisition incorporates investments in advertisements, promotions, and sales efforts, as these can be very expensive, especially in very competitive markets.

One that often provides a higher return on investment is retention, which also requires investment. The reason for this is that loyal customers tend to spend more money over time through participating in upsell opportunities, referring new customers, and reducing cost per acquisition in the long run.

For example, although a loyalty program directed at existing customers might cost less compared to a comprehensive advertising campaign to attract new ones, the ROI from the loyalty program will be very strong, given the rise in spending and referrals from the same customers.

Read Also: Increase visitor engagement with Google Analytics and maximize conversions.

3. Marketing Focus:

The marketing strategies for retention and acquisition are pretty different. Retention strategies are much more oriented toward incorporating personalized one-on-one communication.

This can be personal emails, customer satisfaction surveys, loyalty programs, and content based on the unique needs and preferences of the customer.

Acquisition strategies target far broader reach. This could be search engine optimization, pay-per-click advertising, social media marketing, or influencer partnerships.

Here, your task will be to expose users to your brand and persuade them to take the next actions that might include making a purchase, signing up for a newsletter, or trying a demo.

For example, an SEO firm might leverage its expertise in SEO to find new clients looking for marketing services but retain them through personalized email campaigns showing additional value or behind-the-scenes insights.

The results time frame is yet another factor that differs in retention from that in the case of acquisition strategy. One main difference that exists is that the customer acquisition efforts offer more immediate, faster solutions since they aim to attract more customers within a very short period of time. However, such results may not be long-term without a good retention strategy supporting them.

Retention strategies are slower-burning, though they have long-term gains in mind. Relationships aren't built overnight with existing customers, so the returns are huge in the form of a higher customer lifetime value, heavier brand loyalty, and a more stable revenue stream.

For example, while a flash sale or a promotional campaign may win customers quickly, the long-term value of these customers can be gained only through customer retention strategies such as continuous engagement and customer satisfaction programs.

4. Relationship Building:

Relationship-building lies at the heart of customer retention. It is the act of building a strong, positive relationship with your customers and making them feel valued and appreciated all the same. This demands continuous communication, understanding their needs, and always delivering value.

Acquisition, much like relationship building, is more focused on the earlier stages of the customer journey. The idea is to create a strong first impression that convinces potential customers to choose your brand over competitors.

For example, the relationships that a digital marketing firm may form with new clients could be based on personable onboarding and continued support.

On the other hand, however, it would foster exactly these same relationships with existing clients by means of regular check-ins, exclusive offers, and individually tailored marketing strategies.

Benefits of Having a Strong Customer Retention:

Now, having established the importance of both customer retention and acquisition, let us consider in detail why strong customer retention is beneficial for your business.

Higher Customer Lifetime Value:

Among all the metrics that define business performance, customer lifetime value is perhaps one of the most important. Customer lifetime value is simply the total revenue your business may generate from a customer over the duration of their engagement.

If you retain customers longer, their CLV will be higher, and therefore more value for your business.

For example, consider that a client has been with a digital marketing agency for several years. With the relationship deepening over time, spend may be increased, more services purchased, or new clients referred to. This not only increases the revenue but results in a more stable income stream. Moreover, with a high CLV, a client normally does have a higher propensity to participate in upsell opportunities hence increasing their value towards your business.

Improved Customer Loyalty:

One other vital benefit of proactive retention strategies is increased customer loyalty. They are more likely to be loyal, become brand advocates, spread positive word of mouth, and recommend others to your place of business.

For instance, think of reputable brands like Apple or Amazon. The loyalty of their customers is extreme to systemized products but also to the experience and relationship that has been built over time. Loyal customers will not easily be swayed to competitors even when they offer almost identical products or services at cheaper prices.

Positive Word-of-Mouth:

Word-of-mouth may be among the most powerful marketing tools. If customers have a positive engagement with your brand, then they are sure to pass on the experience to others via online reviews, social media, or just simple word-of-mouth recommendations. This kind of organic promotion can be invaluable because it emanates from trusted sources and costs no extra money in marketing.

For example, if he is very satisfied with your digital marketing services, he may spread good words about your company to his network, thus increasing new client referrals. Such positive word-of-mouth does not only work in drawing new customers but also strengthens the loyalty of existing ones by making them feel proud to be associated with a brand valued by others.
Read Also: A step-by-step Guide to Buzz-worthy Marketing Strategy

Lower Cost of Customer Acquisition:

As hinted earlier, winning new customers is costlier than retaining the ones you already have. Thus, focusing on retention can help your business reduce overall customer acquisition costs. If they are loyal and satisfied, then you will have less to spend on marketing and promotions to keep up their interest.

Moreover, one will find that satisfied customers tend to participate in referral programs, further decreasing your acquisition costs. For example, a digital marketing company might offer some percentage of a discount or incentive for clients who refer new businesses. This not only retains the referring customer but also reduces the cost of acquiring the new customer.

How to Improve Customer Retention:

Now that we have discussed the advantages of customer retention, let us look at some effective ways to improve it.

• Excellent customer service is the most crucial element of customer retention. If customers feel valued and cared for, chances of them sticking with your brand are higher.
• Developing solid relationships with customers circles around establishing an understanding of their needs, preferences, and pain points. This requires periodic communication, personalization of contacts, and maintenance of value over some time.
• Loyalty programs are quite effective in driving repeat business and offering rewards to customers. You can achieve this by providing discounts, special offers, or a number of redeemable points against a reward, thereby attracting the customer to stick with you rather than your competitors.
• Customer feedback can instrument an increase in the chances of retention. Periodically soliciting feedback from customers will help you realize where your business is falling short and fix such issues before they become instances of churn.

Balancing Retention and Acquisition for Long-Term Success:

While retention and acquisition are important, finding a balance is crucial for long-term success. Here are some strategies for striking that balance:

1. Setting clear goals:

The first step toward finding a balance between the two is to set clear, measurable goals for each. It means defining what success looks like for your business in terms of customer retention and acquisition and creating a plan on how to hit those goals.

For example, a digital marketing firm can set an objective of 10% increase in retaining its clients within the upcoming year and also can further establish that it has to gain 50 new clients. By doing so, it will be able to manage its resources properly while measuring the progress against its goals over time.

2. Effective Resource Allocation:

Effective resource allocation is important in the balancing act between retention and acquisition. All it means is to determine how much of the budget, time, or effort needs to be allocated to either area, based on business goals and needs.

For example, if your customer base is stable and you have growth goals, you may want to give more resources to acquisition, such as running PPC campaigns or growing your SEO strategy.

On the other hand, if you have seen a slide in customer satisfaction or retention rates, you might want to start investing more in retention strategies, which could include enhancing your customer service or introducing a loyalty program.

3. Measure and Analyze Performance:

Lastly, measure performance regularly for both retention and acquisition activities and conduct an analysis. Customer lifetime value, rate of churning, acquisition cost, and conversion rate are some key metrics that should be tracked.

You will be able to use this data to know where to improve and therefore adjust strategies accordingly and make sure both efforts toward retention and acquisition are working toward long-lasting business success.

For example, let's say a digital marketing company is using analytics tools to measure the performance of the campaigns regarding customer retention and acquisition. Assuming that data demonstrates efforts to retain are resulting in higher CLV and reducing the churn rate, then it will increase investment in those strategies.

On the other hand, if acquisition proves powerfully increasing growth, it might decide to allocate additional resources for expansion.

In other words, customer retention and acquisition go hand-in-hand. While customer acquisition can be a means towards wider audiences and increased market share, retaining customers is cost-effective and leads to long-term growth that is manageable.

Striking the right balance between both approaches, therefore, involves setting clear objectives, effective allocation of resources, and proper measurements at regular intervals.

While you plan the next steps, think about how you can be improving customer retention but at the same time still have a feel for capturing new ones. With the best in customer service, loyalty programs, or campaigns on target through its marketing, striking a balance will go a long way to securing one with firm grounds of loyal customers, a very fundamental base giving rise to long-term success.

Ready to take your business to the next level? At Ontogen Digital, we specialize in getting businesses just like yours to achieve that perfect balance between customer retention and acquisition. Connect with us at info@ontogendigital.com to learn more about the services that we offer and how we can help grow your business for the future.