Welcome to our monthly Newsletter, which aims to create more awareness of the Virtual Assistant (VA) industry.
Customer Acquisition Vs Customer Retention
All marketing gurus have had a considerable debate about what is more important, customer acquisition or customer retention. It is fascinating how both strategies can make a massive difference in any business.
Fun Facts – Marketing stats – Customer acquisition and retention
- Customer acquisition is five times more costly than customer retention.
- Profits can increase by 25% to 95% when customer retention is increased by just 5%.
- The success rate of up-selling or cross-selling your product/service to an existing customer is 60%-70%, and the same is just 5%-20% for selling your product/service to a new customer.
- In a survey done by American Express, 33% of customers stated that they would switch companies after the first instance of poor customer service.
What is customer acquisition?
When a business promotes its brand and designs onboarding/conversion experiences that result in potential customers making their first business transaction with them, this is called customer acquisition. This initial transaction converts the potential customer into a customer of the business. The first conversion activity can be subscription, order, app download, hire/rental etc. – depending on the company.
Familiar elements of an acquisition strategy typically include:
- Identification of potential customers
- Designing and implementing marketing strategies
- Regular follow-up on potential sales
- Measuring the success of strategies
Customer acquisition efficiency can be determined by calculating CAC – Customer Acquisition Cost.
The formula used to calculate CAC = “Marketing & Sales costs / Customers acquired”.
Businesses use CAC to calculate the effectiveness of their marketing efforts (campaigns, ads etc.) over a given period of time. This metric is powerful as it shows the number of new customers acquired and the efficiency of the marketing effort.
Depending on the type of business, their goals, budget, and skillset at exposure, companies use several customer acquisition strategies such as paid media, paid search and content marketing etc.
Now that we understand customer acquisition let’s look at customer retention.
What is customer retention?
Customer retention is a business’ effort to build better relationships with existing customers to increase customer loyalty and repeat purchases. Secure data management and contextual messaging harmonising with customers’ likes and interests are keys to customer retention.
Customer retention can be measured using several key metrics, but the most commonly used metrics are CRR – Customer Retention Rate and CCR – Customer Churn Rate.
CRR shows the percentage of customers that have continued to engage with a business over a specific period. It is calculated using the formula – [(Customers at the end of the period – New customers during the period) / Customers at the beginning of the period)] x 100.
CCR, on the contrary, shows the percentage of customers a business has lost over a given period and is calculated as – (Customers lost during a given period / Customers at the beginning of the period) x 100.
Measuring the above metrics is crucial to assess customer loyalty, but to understand the effectiveness of customer retention, the business needs to track its Customer Lifetime Value (CLV). CLV tracks how a customer’s purchases change over time. CLV shows the amount of money a customer spends on the business’s products or services throughout their respective customer lifecycle. There are different ways to calculate CLV, but the most common formula is – Gross margin per customer lifespan x [Customer retention rate over a period / (1+ Discount rate over a period – Customer retention rate over a period)].
There are various customer retention strategies, but it depends on a business’s digital resources, access to customer data and the subtleties of the company. A few customer retention strategies are paid retargeting, quality products/services, email marketing, In-app recommendations (cross-sell, up-sell), loyalty programs, customer experience, and customer support.
So, which of these is more critical for a business – Customer Acquisition or Customer Retention?
There is no right or wrong answer to this. It depends on various factors specific to a business. In general, customer acquisition is more important for your business development, particularly if you are a start-up. However, customer retention becomes more important for your business as your business matures. Most importantly, customer acquisition and customer retention go hand in hand. You can’t have customer retention without customer acquisition because you can’t retain customers if you don’t have customers.
So, there you have it, a quick insight into customer acquisition vs customer retention. Both strategies are essential for a business to grow and succeed, but they require different approaches, depending on your business needs.
If you want to know more about your customers and marketing efforts, ways to acquire new customers or strategies for customer retention, don’t hesitate to contact Octopus Admin. We are happy to help with your current business processes and marketing strategies. Take advantage of the “Free Discovery Call” today to learn how we can help your business grow.
