Customer Acquisition and Retention: What’s More Important?

customer acquisition vs retention

The debate between prioritizing customer acquisition and retention has long been a topic of discussion in business, especially in the SaaS industry. Companies often shift from one business strategy to another as the market and their internal conditions change, but what is more important?

Customer retention aims to retain existing customers, while customer acquisition aims to acquire new ones. Although both customer retention and customer acquisition are equally important for business growth, their focuses, approaches, and goals are completely different. Understanding these differences is the key to creating and implementing powerful strategies that maximize both efforts.

Stay with us to learn more about these two business strategy components and understand how to use both to drive more growth and revenue.

Customer Acquisition: Definition

Customer acquisition is defined as the process of attracting new customers to your company, which includes the entire buyer’s journey, from the moment a customer becomes a lead to when they become a buying customer.

Customer Retention: Definition

Customer retention is a company’s ability to keep existing customers for a certain period of time. The main aim of customer retention strategies is to maximize customer lifetime value, nurture long-term relationships in order to expand the customer base and generate revenue from existing customers by making sure that they continue to use your product or service.

Customer Acquisition vs. Retention: Differences

Customer retention and acquisition are two main aspects of a business growth strategy, each has its own focus and aim. Let’s see the crucial differences between customer acquisition and retention:

  • Goals
    • Customer retention focuses on improving customer loyalty and lifetime value by keeping customers happy and engaged. On the other hand, customer acquisition aims to attract new customers.
  • Customer acquisition cost vs retention cost
    • Customer retention costs are usually lower because they don’t include advertising and promotion, as acquisition costs do. Retention aims to keep the current customer engaged and loyal by providing excellent customer service and loyalty programs, which is more cost-effective.
  • Metrics to track
    • One of the key differences between customer retention and customer acquisition is their metrics. Customer acquisition is measured by using metrics like conversion rate and cost per acquisition, while customer retention uses metrics like churn rate and customer lifetime value (CLV).
  • Time of Implementation
    • Customer acquisition and customer retention timing also differ. Customer acquisition strategies are implemented at the beginning of the customer lifecycle. On the other hand, retention is an ongoing process that lasts through the entire customer journey with the focus of keeping the customer happy and motivated to continue using the service.

Both ensure more revenue for the company, yet the customer acquisition and retention strategies are implemented for different reasons. In the first case, the goal is to expand the customer base to grow the business, while in the second, the goal is to build long-term relationships to improve loyalty.

Customer Retention vs. Acquisition: Similarities  

Now, let’s see the key similarities between customer acquisition and retention:

  • Building long-term customer relationships and delivering value
    • While acquisition builds credibility and trust with leads, retention strengthens the current ones. Both strategies aim to get an in-depth understanding of customer needs, challenges, and references to tailor the offerings and approach based on their specific requirements.
  • Increasing customer lifetime value
    • New customers will bring new revenue to the company while existing ones will improve it through loyalty and recurring purchases.
  • Data Analytics
    • Analysing customer data is essential to understanding customer behaviour and adapting strategies to fit their preferences and needs. The rule applies to both potential and existing customers. With customer success platforms like Akita, you can perform customer segmentation and create retention strategies. Among other things, you get visualised metrics for churn rate, conversion rate, and any other metric you wish to track and assess.
  • Frequent optimization
    • In order to evaluate the effectiveness of your retention and acquisition strategies, it is crucial to optimize and refine them continuously. So, track the right metrics frequently to recognize patterns and trends.

Which to Focus on Customer Acquisition or Customer Retention?

Focusing on customer acquisition should be a goal for young companies that are in the growth stage or for those that have just entered the market. If you don’t have any brand recognition and just a few customers, you should definitely work on promotion, advertising, lead generation, and other acquisition strategies to ensure your company’s name becomes visible in the saturated SaaS market. (Before you take any steps, make sure that your brand voice is clear and unique and that your product fits the market you are targeting.)

Both acquisition and retention marketing strategies aim to bring more revenue for the company. Still, if you manage to increase retention by, let’s say, only 5%, you can expect a significant improvement in profit. If a company already has a substantial customer base, brand awareness, and reputation, it is time to focus on retention. Also, if your customer retention efforts are well-received, that can positively affect acquisition through referrals from your loyal customers. The goal is to prevent churn and grow a healthy and happy customer base to improve customer lifetime value and have as many loyal customers as possible.

Conclusion

Both customer acquisition and retention are crucial for business sustainability and success. While customer acquisition aims to attract new leads, retention aims to keep them for as long as possible and turn them into loyal customers who are willing to advocate for the company.

Finding the perfect balance between retention and acquisition is crucial for long-term business growth, and the first step towards the given goal is understanding your target market, including new and existing customers. This is exactly where CS platform Akita can help you with its advanced segmentation feature, customer health scores, automated alerts, and robust analytics and reports.

Frequently Asked Questions

How can businesses attract new customers?

Businesses can do so through a few different sales and marketing strategies, like social media marketing, content marketing, partnerships, and advertising.

How can businesses improve customer retention?

By offering outstanding customer service, loyalty programs, personalized experiences, and regular updates to keep the customers engaged.

How can I measure the effectiveness of retention and acquisition efforts? 

Easily, by tracking the right metrics! Track metrics like churn rate, conversion rate, customer lifetime value, and others regularly to evaluate the strategies.

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