Customer Acquisition vs. Customer Retention

Posted by Krista Lessard on Tue, Jul 22, 2014 @ 08:04 AM

retaining customers, customer loyalty marketing, how to retain customers, customer retention programs, tecmark, loyalty marketingIt costs 6–7 times more to acquire a new customer than it does to retain an existing one. Why, then, do businesses tend to spend more time and money on customer acquisition instead of customer retention? Maybe they believe that in order to succeed as a business, they must have a cetain number of customers, while this is simply not the case in most situations. For example, it is more beneficial for a company like Target to have 50 customers shop daily than to have 100 customers shop at their stores periodically. Let's look at some other facts.

In order to determine the cost of acquiring new customers for your company, pick a specific period of time and simply divide all expenses dedicated to acquisition by the number of new customers acquired during that time. Expenses might include marketing, promotions, labor, and other advertising efforts directed at new customers. Also, keep in mind that the probability of converting an existing customer is 60 to 70 percent. The probability of converting a potential customer is only 5 to 20 percent.

Customer retention is not as easy to calculate and everyone seems to do it a bit differently. When deciding how you want to calculate your customer retention cost, remember that repeat customers tend to spend 33 percent more compared to new customers. A 10 percent rise in customer retention increases the value of the company by 30 percent! It is also stated that boosting retention rates by just 5 percent can actually raise profits by 25 to 95 percent. I know what you're thinking; when I saw this statistic I, too, felt that it was a very broad range. Obviously, the profits a company will receive will be based largely on the type of business they run. The point is, boosting retention rates has a significant profit raise for any business.

Most companies are interested in retaining current customers while also attracting new ones. Customer retention efforts can bring in new business. Successful customer loyalty programs bring about positive word-of-mouth and referrals. I know I have personally shopped somewhere simply because they had such a great loyalty rewards program. Satisfied customers tell 9 other people about their positive experience, while dissatisfied customers are likely to talk about their negative experience with 22 other people. Start with great customer service and watch your business start to grow.

So, how else can a company attract new business while retaining customers?

1. Provide a great product or service. This is probably the most important part of attracting and retaining business. If your product or service isn't great, it doesn't matter what you do to try to gain customers.

2. Offer a great customer experience. Many times, customers don't return because they had a below average experience with a company. This goes hand-in-hand with having a great product or service. If your product is great but customers are treated poorly, they probably won't be coming back.

3. Communicate with your customers the way they want - email or text. Depending on your type of business, your customers may prefer one way or another and you should adapt to their preferences.

4. Finally, give them a reason to come back. This can be through creating new products, offering new services, or using promotions. Consider using a loyalty marketing program, such as Simpli, to create offers and rewards for these customers to keep coming back.

Is customer retention more important than customer acquisition? We think so, but that is for you to decide for your company. When choosing where to focus your marketing effors, keep in mind that statistically, 80 percent of your future profits will come from just 20 percent of your existing customers.

Learn more about how to retain your customers through loyalty programs.

New Call-to-Action

All stats courtesy of

Tags: Loyalty Marketing