Customer Acquisition 
Or Customer Retention?

Suppose that you own an enterprise, would you prefer to direct your funds towards customer acquisition or customer retention? Both these factors are crucial for a business to grow. But when it comes to directing the marketing funds, you have to choose one as the superior choice. In the case of most businesses, SMEs and startups, it is observed that they direct most of their capital towards customer acquisition rather than retention. But in practicality, both these aspects are equally important for constant growth. 

Customer retention means that you can keep your existing customers happy, and they are buying from you again. At the same time, customer acquisition helps you add more to that customer base. These two aspects are like two wings of an aeroplane; without both wings, any flight cannot be imagined. But there cannot be any case where equal funds are to be given to both. So which one should you choose? Well, let’s dive right into their details to understand. 

What is Customer Acquisition? 

For every business to grow, there is a constant requirement for new customers. This helps improve the revenue generated each quarter and therefore helps with the growth of the business. With the addition of each customer, your business, especially startups, can grow faster in the market. The aspect that provides stats related to adding new customers to a business is called customer acquisition statistics. 

The most common practices which help with customer acquisition are product marketing and approaching the leads. For customer acquisition, enterprises must spend their capital on marketing, sales teams and expanding their inventory. But the outcome of all these efforts helps expand the business and enhance the revenue generated by the sales. 

Benefits of focusing on Customer Acquisition 

Let us consider a situation where you have decided to focus most of your funds towards customer acquisition from the market. Your business plans thus need to be aligned in such a way that the marketing strategy, sales tactics and inventory management all support the addition of new customers. Some of the benefits that you will experience by focusing more on customer acquisition are: 

  • Startups and SMEs wish to have a high growth rate to be termed product-market-fit enterprises. This is something that customer acquisition can provide you. As you keep adding new customers to your business, the net customer gain stays in the green even if there are no repeat orders. The growth rate metric thus trumps other business standards, and your company comes under the view of expanding enterprise. 

  • Focusing on customer acquisition also helps improve revenue-generation in the shorter term. If you add 20 to 25 percent of new customers every quarter, your net revenue and profit go up. Your business can recover the capital spent as the customer acquisition cost. 

What is Customer Retention? 

Now that you are successfully running your business and wish for business growth, you must rely on more than just one-time customers. This will mean you must continuously keep spending money on getting new customers. That makes the customer acquisition cost to come out to be very high. This is where customer retention starts to show its importance. 

Customer retention is the ability of startups, SMEs, and other enterprises to keep their customers happy and get business from them repeatedly. The customer services, support and product quality you provide tend to keep customer retention on the brighter side. Moreover, it is easier to keep getting business from existing customers by ensuring that the business delivers the best service possible. 

Benefits of focusing on Customer Retention

Businesses also need to focus on customer retention as a part of their business growth plan. Some of the benefits of focusing more towards the customer retention side are: 

  • Above all, it’s true that a customer loyal to your business will help your business grow. If you direct funds towards customer retention and provide the best services, your customer lifetime value will skyrocket. The lifetime value is the overall business generated by each customer during their relationship with the business. Higher lifetime value means you keep generating revenue multiple times from the same customers while new customers keep coming in. 

  • Another great thing about focusing on customer retention is that it does not cost much to the company. The return on investment is higher, meaning you can generate business through the same customers without spending much. 

  • A happy customer base will also mean good marketing for the company. A satisfied customer base can spread your products and services through word of mouth, the oldest form of marketing. This will also result in business expansion, which is the overall business growth plan. 

Market Statistics related to Customer Retention  

Market Statistics On Customer Retention

  • Some studies suggest that SMEs, startups and other enterprises generally spend five times more money on customer acquisition than customer retention to generate the same revenue. 

  • If you can increase the customer retention stats by 5 per cent, there are chances that the profit will go up by a minimum of 25 per cent. 

  • The success rate of getting business from existing customers is around 60 to 70 per cent, while the success rate of conversion of a lead to a new customer is just over 20 per cent. 

  • Existing customers are likely to refer the product or service to their friends and family. 

  • Thirty-three per cent of the customers consider changing companies when they experience poor services from their side. 

Conclusion: What Should You Choose? 

Customer retention and customer acquisition are both important aspects of business growth. Your business plans should have both of these aspects included in them. As you have just understood, getting business from an existing customer is much easier than getting a new one. But that does not mean you should satisfy yourself with the existing customer base. Spending considerable capital on customer acquisition via sales and marketing is important for business growth. As a company, your funds should be directed towards providing customers with the best products and services; this will help in enhancing the customer acquisition stats as well as retention stats too. 

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