Financial Data
Updated 18 Oct 2019


Retention vs acquisition: Which is best for your business growth?

New customers are great. Loyal customers are even better. But, where should your focus lie when it comes to gearing up for business growth? 


Diana Albertyn, 10 October 2017  Share  0 comments  Print


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Customer retention is important, now more than ever – especially in ecommerce. But, retention shouldn’t be your sole focus. Growth-hacking and overnight start-up success are making the choice between retention and acquisition a difficult one. After all, you’re never going to turn a profit if no one visits your store, but who do you focus on?

“At the start of a store’s life, it is vital to attract as many people to the store as possible,” says Alex McEachern, loyalty marketing Specialist at Sweet Tooth. “If you don’t have any customers you can’t sell to anyone. However, as a store grows, its existing customer base becomes more and more valuable.” 

Acquiring a lot of new customers may appear more exciting than keeping your existing clients engaged, but is it more important? Perhaps it’s time to put quality before quantity.

Related: Financial solutions for growing your business


TAKE NOTE

The typical online store gets 43% of its revenue from repeat customers. If you master repeat purchases you could be getting up to 75% of your revenue from repeat sales. Do you tend to focus on customer acquisition? Now is the time to focus on how you can grow revenue through your existing customer base.


In with the old and the new 

How much do you really value your loyal customers? Is your discount for new subscribers on first-time purchases showing your existing users they’re still valued? 

34% of company respondents to an eConsultancy survey indicated that they plan on increasing their investment in acquisition, while only 18% said they would focus on retention. Which side do you fall onto and is it doing your grow strategy any good? Perhaps you should consider being part of the other 48% of respondents who said they would invest in both equally. 

Try offering your repeat customers special discounts based on purchasing frequency or their favourite items. The new customers will still be drawn to the excitement of a promotion, but can stay on for the loyalty benefits. Paying attention to both will increase your growth on both ends. 

Become a lasting powerhouse 

If you’re finding it difficult to rationalise customer retention as a growth strategy, a white paper by lead management company Performark explains why: There’s an emotional attachment to the process of acquiring new customers. It makes us feel like we’re really doing something.

“On the other hand, focusing our attention on building customer relationships often makes us feel like we’re doing less – even though we’re usually accomplishing more,” the report states.

Research has proven that revenue from both new and repeat customers eventually converges, following an increase in customer loyalty. This is key to becoming a lasting retail powerhouse and building a brand that inspires loyalty is the ultimate secret to scale.

Related: 8 Free resources for setting up business processes and systems

Shift the balance 

Keeping your customers’ attention, never mind attracting new ones, has become harder with the overwhelming choice available to them. Customers are demanding more, and this means you have to up your game if you are to grow your fan base. 

A study conducted by Bain & Company and the Harvard Business School found that increasing customer retention rates by 5% increases profits by 25% to 95%: “In industry after industry, the study found the same pattern of early losses followed by rising profits as the cost of serving loyal customers diminished and the volume of their purchases rose.”

Although new ecommerce customers cost 20% to 40% more to acquire than in traditional retail, the losses incurred by these businesses in the early stages are more than made up for as profits accelerate.


CONSIDER THIS

Both customer retention and acquisition are vital considerations when focusing on business growth. While the latter costs more now, with long-term rewards, the former gives you far quicker results, but is also more challenging.

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About the author


Diana Albertyn


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