Customer Acquisition vs Customer Retention: Prioritizing for Growth

Angela Frank: 00:00:00

Welcome to The Growth Pod. Today we're checking in one on one to learn which is more important for your growth, customer acquisition or customer retention.

I'm your host, Angela Frank. I'm a fractional CMO and founder who's generated millions of dollars in marketing revenue for my clients.

In: 2022

So if you're like me and love learning about how to grow your business more efficiently, you've come to the right place. Customer Acquisition or Customer Retention which should you prioritize for business growth?

Well, if you've listened to any of my solo episodes on this podcast, then you probably know my recommendation here. Both Combining customer acquisition and customer retention is the ultimate business growth strategy.

And in today's episode I'll share how to combine these two to get even better marketing results and generate more revenue. Oh, and all that without adding a bunch of time intensive tasks to your to do list or hiring another team member. Sound good? Let's get into it.

The first thing we need to do is understand the role that each of these strategies plays in a business. Customer acquisition is exactly what it sounds like. It's the process of attracting and converting prospects into customers.

Customer retention focuses on what happens after somebody becomes a customer, and it focuses on a company's ability to turn a customer into a repeat buyer and prevent them from switching to a competitor. And each of these strategies clearly contribute to your growth differently.

For example, if you don't have a customer acquisition strategy, your growth will stall or be very slow. And if you don't have a customer retention strategy, then you have enormous acquisition costs.

And since you have to constantly find new customers, you'll eventually run out of people to sell to. Normally those situations don't happen though, because it's pretty normal to market your business to acquire new customers.

And because you've spent all that time and resources to acquire those customers, you're going to try your best to keep them happy and around as long as possible. But just because acquisition and retention occur naturally in a business doesn't mean you can ignore these strategies.

Instead, you need to make sure that you're giving each the dedicated attention they need and working to integrate them into your marketing ecosystem. Let's focus on customer acquisition first, since that's the beginning of the customer journey.

There are so many different marketing channels that play into acquisition, and every brand is Unique. But generally, acquisition will be where some of your more immediate growth will come from and where you have a lot more levers to play with.

At the end of the day, the most important thing to focus on for customer acquisition is how much money does it cost to acquire a customer. Over time, as you get better at acquiring customers, this number should decrease.

If, on the other hand, your acquisition costs keep rising, you've got a pretty major problem to address in your growth strategy. And I really want to emphasize that point. Rising acquisition costs is a sign that something is wrong with your marketing.

And the reason that I point this out is because rising acquisition costs is pretty common among businesses of all sizes. But it's kind of like getting a cold.

Just because it's common for people to get a cold or the flu doesn't mean it's something that you should live with. So over time, your acquisition costs should come down.

And as your brand grows, grows, grows, you'll eventually get to a place where your acquisition costs are pretty stable. You'll always have some sort of marketing expense, so you'll always have a customer acquisition cost.

But over time, you should find a zone where your acquisition costs remain within.

But acquisition isn't the only way to grow revenue for your brand, which is why paying attention to how long customers stay with you, how many purchases they make, and their customer lifetime value are all important metrics to track as well. When you look at your customer retention, all of those metrics are important.

But one of the most meaningful indicators of growth with customer retention is customer lifetime value. I like customer lifetime value for two reasons. One, it's easy to track, and two, it helps your team focus on the right metric. Right?

We don't want people making low value purchases frequently. We want valuable purchases to be made as often as possible.

When you use customer lifetime value as your primary metric for success with customer retention, you're able to quickly see if the work you're doing to retain customers is moving the needle or if it needs refinement. So clearly, both acquisition and retention are incredibly important strategies when it comes to growing your brand.

But there's something you can do do to make them even more powerful, which is to integrate both of these strategies into your marketing ecosystem so their total revenue generated is greater than the sum of their parts.

When you integrate these into your marketing ecosystem, you make a dedicated effort to create a seamless experience from customer acquisition to customer success. Your prospects shouldn't get the same experience from your brand once they become customers.

Instead, you should nurture them completely differently as they prepare to make their next purchase from you.

When you approach acquisition and retention in this way, you create a strategy that builds even more trust with your customers because they feel cared about and heard as they prepare to make that next purchase. But you also give them new information that they may need now that they've become a customer.

Things like educational information that customers would find valuable, exclusive community invitations, product training, certifications, in person gatherings, and more can all be used as a way to improve your customer retention.

And because retention is part of your marketing ecosystem, there's now an opportunity to share key pieces of your retention strategy with your acquisition strategy.

For example, if you host a super exclusive and fun event for your customers, that's a great piece of social proof for your marketing that also sparks a little bit of fomo, the fear of missing out. And because you're showing off how much you care about your customers, prospects also trust your brand a lot more as they're considering a purchase.

When you combine both acquisition and retention in your ecosystem, you discover all of these great synergistic ways to improve your marketing. And that's how you're able to spend less on marketing while increasing your revenue and profit. So now it's time to take action.

Do a quick audit of your ecosystem by answering these three Do I have a great strategy for both customer acquisition and customer retention? Are each of these strategies siloed or are they working together within the broader context of my marketing ecosystem?

And finally, how can I create more synergy between customer acquisition and customer retention? Your answers to those questions will guide your next steps for growth. Thank you so much for listening to this episode of The Growth Pod.

I look forward to seeing you in the next one.