Customer Acquisition vs. Customer Retention: What Should You Focus On?
August 18, 2020
By Jenna Ott
Over the course of my career in marketing, I’ve worked with a wide range of customers in various industries. One of my former roles was that of marketing director for a finance company that provided outsourced CFO and finance services to startups, primarily in the SaaS realm. This particular question came up often and has continued to come up frequently: “What should my efforts, both marketing and business in general, be focused on when it comes to customer acquisition versus customer retention?”
The short answer is that there are good reasons to put effort into both. But to truly determine what percentage of your time, effort, and resources should be allocated to each, there are some key things to consider.
Customer Acquisition Drives Growth
Every CEO and business leader will tell you that you need to be filling your sales funnel with prospects on a consistent basis. The reality is that without adding new customers, your business won’t be able to grow.
You will always have customer churn. According to ProfitWell, the average churn rate for SaaS companies is around 4.8 percent, which means customer acquisition will always be necessary to maintain a business, but it is also necessary to grow a business.
Something I’ve always admired about the most successful business owners I’ve gotten to work for and with is the way they approach growth. The most effective growth strategies have been just that, strategies. They have been well thought out, taking into consideration not only the growth goals but also the realities of the resourcing and staffing needed to support those goals. With those considerations factored in, growth-minded leaders set customer acquisition goals that are well timed and supported by the entire organization.
This mindset enables an organization to take a scalable approach to customer acquisition. As the organization gains the ability and resources it needs to service an increasing number of new clients, it can invest more in its customer acquisition efforts. This leads us to customer retention.
Customer Retention Creates Sustainability
Whereas adding new customers to your business drives growth, retaining customers is what gives your organization stability and sustainability. Consider these customer retention statistics from Invesp:
- Acquiring a new customer can cost five times more than retaining an existing customer.
- Increasing customer retention by 5 percent can increase profits by 25-95 percent.
- The success rate of selling to a customer you already have is 60-70 percent, whereas the success rate of selling to a new customer is 5-20 percent.
Based on these statistics, there are clear cost benefits to focusing on customer retention. Beyond the cost savings, there are long-term benefits that should be considered as well.
Retaining a customer means retaining revenue, or creating a source of recurring revenue for your organization. Recurring revenue enables an organization to better plan, more accurately allocate resources, and more effectively support the needs that come with growing the business. A recurring revenue model makes for more accurate forecasting, which, in turn, improves the quality and speed of decision-making within the company.
Another key benefit of customer retention is the impact it has on your internal team. Having the knowledge that a customer will need your services month after month allows you to accurately allocate resources to that customer and effectively plan for your team’s capacity. With this, you can make more informed decisions as to where you need to invest in your team and the resources you need to properly service your customers and support your growth.
An important fact to consider is that recurring revenue and subscription-based business models have been on the rise in recent years. Outsourcing some business functions and services has proved to be more cost-effective and easier to manage for companies, especially when it comes to SaaS needs.
What It Takes to Acquire a Customer
When developing a customer acquisition strategy, you need to be focusing on the right efforts. Customer acquisition largely relies on marketing in order to attract and convert new customers.
An acquisition strategy and the marketing efforts supporting that strategy typically include email outreach; content marketing; social media efforts, both organic and paid; and content offers that target key personas and provide value that makes prospects want to learn more or speak with you. All of these efforts are developed after research is done, data is collected, and target personas are established.
At the end of the day, both time and effort go into acquiring a new customer. Each element of the strategy comes with a cost, whether it’s in the form of time and effort or money spent on things such as paid social ads and content development. In short, customer acquisition efforts come with up-front costs.
What It Takes to Retain a Customer
When it comes to developing a customer retention strategy, it helps to remember the golden rule that most of us grew up hearing come out of our parents’ mouths: “Do unto others as you would have them do unto you.”
Think about how you expect a company to treat you as the customer. We all expect a certain level of service from a company when we choose to give it our business. Among our expectations are responsiveness, respect, and consideration. So ensuring that your organization provides your customers with the same level of service and care that you would expect is paramount when it comes to customer retention.
Customer retention is about relationships. Providing customers with high-quality products and services, being a trusted partner who is invested in their business, and always delivering great customer service will create customer loyalty and a strong long-term relationship. These things require a high level of attention and care from your entire organization, but they often rely most heavily on your client services team members.
Prioritizing Customer Acquisition and Customer Retention
The question is often phrased as, “What should I focus on, customer acquisition or customer retention?” But it really should be a question of how and when to prioritize customer acquisition and customer retention. Both are key to your business success.
The best approach is to focus on each at the time that makes the most sense for your particular organization. A general approach should be to focus your efforts on customer retention to position your organization for long-term sustainability while maintaining customer acquisition efforts to balance your customer and revenue churn. As your customer retention efforts result in more recurring revenue, scaling your customer acquisition efforts to drive growth becomes a natural progression.
The sustainability and the long-term growth of your organization rely on a strategic prioritization of both customer acquisition and customer retention.
About the author
Jenna Ott was formerly an Inbound Marketing Strategist at SmartBug Media with 8 years of experience working with startups, enterprise organizations, and everything in between. She also has a background in video production and loves finding ways to put her video knowledge and marketing strategies to work for her clients. Read more articles by Jenna Ott.