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Customer Acquisition vs. Customer Retention

8 November 2018
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Customer acquisition or customer retention – that is the question!

Quite a few small and medium businesses struggle with this dilemma: should they invest in acquiring new customers or in retaining existing ones? Giant conglomerates obviously have enough resources to invest in both, but when resources are more limited and finite, it is worthwhile to examine both directions.

Many studies suggest that the cost of attracting new customers is five times higher than the cost of retaining existing customers. But this is an overall average; depending on the industry you are in, it could be more than 25 times more expensive.

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It can be perceived another way, the “half glass full” way, by considering the following statistics: a 5% increase in customer retention may increase profits by 25%-95%!

These data show clearly that customer retention is very profitable, and therefore, companies and businesses should consider investing more in this part of the business. But the situation is more complex than that, as can be seen from the fact that 44% of companies focus more on customer acquisition, in comparison with just 18% of companies that focus on client retention.

89% of companies see customer experience as a key factor in driving customer loyalty and retention

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The different emphasis can be explained by the difference between various business models, or by a different outlook as regards short term and long term profit.

Marketers use bobile apps to increase:

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Nevertheless, there is one big common denominator to these points of view – both of them regard customer experience as a paramount element for enhancing customer loyalty. A dissatisfied customer will not only depart but will also share the experience, which would impact your business negatively. Satisfied customers, on the other hand, can bring more business. Moreover, existing customers will spend 30% more, and are 50% more likely to try your new products and services than new customers.

How to measure customer retention?

In order to make informed decisions and provide priorities to sales, marketing, customer satisfaction/retention teams, is essential to possess relevant data. To this end, the Churn Rate metric was invented.

What is the Customer Churn Rate?

Simply put, Customer Churn Rate is the percentage of your customers (or subscribers) who cancel or don’t renew their subscriptions during a given time period.

The churn rate is an important metric for companies that run a subscription-based business model, for example. A business that is interested in keeping customers, for all the reason stated above, must check how many are leaving and understand the reasons they do so. For instance, if the customer churn rate is on the rise, it means that the customers do not stay long enough for you to even recoup the customer acquisition costs (CAC), meaning you have a problem.

With the advent of Big Data and corresponding analysis tools, it is now possible to consider the churn rate at the segment level (age group, location, etc.) and even at the individual customer level. Moreover, the fact that some of these tools are available through the Cloud makes it possible to track individual customers in real time and make decisions through improved connectivity and collaboration between HQ, employees in the field, and customers.

 

* Original article

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