Customer acquisition vs customer retention – which is more important?

If you say both are important, that’s the most practical and common answer.

Now, be more relevant to your specific business situation and identify for 2016 which is MORE important to your business success and why.

One method to achieve more clarity is to weight their relative importance based on the investment you will make to acquire new customers vs retain them for 2016.

(Investment = all $ in marketing, systems and people focused on each)

Customer acquisition = $ and %

Customer retention = $ and %

TOTAL = $ and 100%

It’s relatively easier to prove the value of acquisition although attribution of marketing investment is always a challenge. Proving the value of retention takes some analysis.

There are many studies that prove the value of an existing customer and the power of retention (Bain & Company, along with Earl Sasser of the Harvard Business School, have shown that even a 5 percent increase in customer retention can lead to an increase in profits of between 25 and 95 percent). There is also the accepted wisdom of “it takes more $ to acquire a customer than to keep one”.

Maybe you should work harder to determine what that retained customer is worth and over what period or “lifetime”.

What is the lifetime value of your customer?

In all the training courses I take on customer retention, when I ask that question, I never get more than 10% saying they actually know. The common hurdle is they do not know what “lifetime” actually means and the challenges in calculating that period.

Maybe this simple coffee example will get you going. (The assumption here is that you purchase from the same café every day)

1 coffee per day = $4

5 per week = $20

48 weeks = $960 (given 4 weeks you are away from your work)

3 years of “lifetime” in your location/ work = $2880 (given the transience of work these days)

So the café owner should look at you as $2880 customer not a $4 customer.

There is a great example of this and an infographic with various levels of calculation at kissmetrics.com

There are other resources to help formulate lifetime value and the accounting principle required to work out the present value of money.

You can find a more sophisticated tool here

So which is more important to your business in 2016 – customer acquisition or customer retention?

Do some analysis and then let the numbers help you decide which is more important.

 

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