As a business owner, it can be challenging to determine where to allocate your time, effort, and budget. Customer acquisition and retention are both crucial to the success of your business, but many business owners struggle to strike a balance between these two efforts.
If you've found it hard to juggle both customer acquisition and retention, we're here to help. Read on to learn all about these business strategies, including which are the most important and effective ways to manage both efforts while still finding the time to run the day-to-day of your business.
What is customer acquisition?
Customer acquisition is the process through which businesses gain new customers. It encompasses the following multi-step process:
- Attracting new leads. Customer acquisition begins with attracting new leads through high-level prospecting efforts, such as brand awareness campaigns and cold prospecting.
- Nurturing leads. Next, you have to build a relationship with your new leads. This is the time to educate new leads on your product or service and push them further down the sales funnel.
- Customer activation. Finally, it's time to encourage the sale. Converting leads into customers is the final step of the customer acquisition process.
There are many different ways to acquire customers. For example, your customer acquisition strategy may look like this:
- Attracting leads through social media marketing. Your customer acquisition strategy begins with organic social media. A potential customer discovers your business through an Instagram reel, visits your website, and signs up for your email list using a pop-up form.
- Nurturing leads through email. Now that you've turned this stranger into a lead, it's time to build a relationship with them. Funnel them into a drip email campaign that educates the customer about your business. Use customer segmentation to lead them directly to the products that best meet their needs.
- Converting with a discount code. In the final email of your drip campaign, it's time to turn this lead into a customer. Encourage their first purchase by offering a limited-time discount code for a product they've browsed. Congrats! You've earned yourself a customer.
What is customer retention?
Customer retention is a strategy that enables you to retain existing customers and prevent them from leaving. Through targeted retention efforts, you can transform one-time customers into repeat buyers and foster lasting relationships that enhance customer lifetime value.
Your customer retention strategy may look something like this:
- Regularly engaging via newsletters. Newsletters are an effective way to retain existing customers and stay top-of-mind. Use your newsletter to introduce new products or services, tell stories that build relationships, or share relevant information.
- Re-engaging lapsed customers with discount codes. Lapsed customers quickly become churned customers without engagement. Revive your lapsed relationships with a discount code for customers who haven't made a purchase in a year or longer.
- Building community on social media. Use your social media to foster a sense of community among your existing customers. Re-post pictures featuring your products and leave your direct messages open for customer feedback.
Why is customer acquisition and retention important for business?
Customer acquisition and retention strategies are not either-or. Discover why both are essential to your business.
Customer acquisition drives growth
Customer acquisition is all about growing your business. Strategic customer acquisition enables your business to grow consistently and sustainably. Through effective strategies, you can:
- Increase your market reach. Effective customer acquisition efforts enable you to maximize the potential of your existing markets by thoroughly penetrating them and converting as many potential customers as possible.
- Expand into untapped markets. Every market has its limitations, and relying on a single market is unsustainable. Strong customer acquisition enables your business to expand into untapped markets and unlock new opportunities.
- Improve your brand awareness. Building brand awareness can put your customer acquisition on autopilot. It builds trust and sells products for you, reducing the amount of work you need to put into your customer acquisition efforts.
Customer retention drives profitability
Once you've put in the effort to gain a new customer, it's essential to utilize customer retention strategies to keep them coming back. Customer acquisition is one of the highest costs a business can incur, so it's essential to maximize the value of every customer you acquire.
Improving customer retention can lead to more repeat business, higher customer lifetime value, and a greater return on investment. Repeat customers are also likely to spend more now that they understand the value you offer. Fostering loyal customers can also enhance your brand awareness, create brand advocacy, and support customer acquisition efforts and drive sustainable growth.
What are the differences between customer acquisition and retention?
Each of these efforts drives a different outcome. Let's look at the key differences between customer acquisition and retention:
Goals
Customer acquisition and retention have distinct objectives. Customer acquisition is used to find new customers and expand your customer base. In contrast, customer retention targets existing customers to increase the lifetime value and return on investment (ROI).
Costs
There's also a significant difference in acquisition and retention costs. Customer acquisition costs significantly more than retention, as it involves casting a wide net and spending a great deal of time nurturing leads who may or may not convert. On the other hand, customer retention costs are significantly lower.
ROI
Customer retention efforts yield a significantly higher ROI than acquisition efforts. The ROI of customer acquisition efforts is limited to the value of the customer's first purchase, which is typically quite small in comparison to the amount of money it costs to acquire them. The ROI of customer retention, on the other hand, includes the total amount a customer spends with you over their lifetime.
Teams
Your customer acquisition and retention efforts will likely be handled by different teams. Acquisition is mainly handled by sales and marketing teams, whereas customer support and success play significant roles in customer retention.
Should businesses focus on customer acquisition or retention?
Sustainable business growth requires a combination of customer acquisition and retention. To make the workload manageable, use these tips to balance both efforts:
Choose the correct acquisition channels
Don't spread yourself too thin by attempting to build a presence on every acquisition channel. Instead, research where your customers spend the most time and focus your efforts there. Doing so can help increase your acquisition rate.
Utilize automation whenever possible
It's easy to get buried when you run your email marketing and social media manually. Utilize marketing automation to create drip lead nurturing and re-engagement campaigns and consistently post on social media.
Focus on high-value customers
When it comes to your customer retention, it's important to remember that not every one-time purchaser will convert into a loyal customer. Customers who have made two or three purchases are significantly more likely to make a purchase again. Focus the bulk of your efforts on customers with high lifetime value.
Encourage brand advocacy
People put their greatest trust in the brands their friends and family love. Make existing customers a central part of your customer acquisition plan by encouraging them to share their experience with your brand.
Build a smarter strategy with both customer acquisition and retention
Customer acquisition and retention are both central to the success of your business. Strategic customer acquisition efforts attract new, fruitful customers to your business, while strong customer retention efforts keep them coming back time and time again.
Mailchimp plays a key role in customer acquisition and retention. Through automated email marketing, detailed analytics, and precise segmentation, Mailchimp can help you sustainably grow your business while increasing ROI and customer lifetime value.
Key Takeaways
- Customer acquisition refers to the methods by which businesses find new customers and expand their customer base. In contrast, customer retention encompasses strategies to encourage repeat customers and increase customer lifetime value.
- Customer acquisition is a much more costly endeavor but is essential for maintaining growth. Retention, on the other hand, tends to have a higher ROI.
- Both acquisition and retention are necessary components of a sustainable and healthy business.