Customer Retention vs Customer Acquisition: Why your existing customers hold the key to growth

Read time: 8 mins

A steady stream of new customers is the lifeblood of any business that wants to grow. And to make that growth sustainable and profitable, you also need to get existing customers to purchase again and again.  

Working within the confines of a limited marketing budget, how do you make sure you capture the imaginations of new customers while simultaneously investing enough time, effort and advertising spend to generate repeat business from the customers you’ve already won? 

There is a way to do both things without breaking the bank, stretching yourself too thin, or tilting too heavily in one direction or the other. If you treat them right, your existing customers can become your biggest asset, promoting you to their friends and attracting high-quality new customers predisposed to identify with your brand. 

While both retention and acquisition are crucial components of your success, customer retention forms the bedrock of sustainable profitability. If you tend to your existing customer base in a way that builds their loyalty and respect, your existing customers can become passionate brand advocates: taking part in refer-a-friend schemes, sharing your content on social media, and myriad other activities that amplify your voice and spread enthusiasm and trust in your brand.    

Why Customer Retention is the Key

Acquiring a new customer can be anywhere from 5 to 25 times more expensive than retaining an existing one. Getting customers who’ve already bought from you to buy again is a lot easier and cheaper than persuading someone completely new to buy from you for the first time. That’s because you’ve already established a relationship with those customers. If you work on that relationship, building trust and loyalty, you won’t have to spend loads of extra cash on each repeat purchase. 

It’s not like customer retention is free, you still need to create thoughtful and compelling marketing content, but investing in ways of understanding and nurturing your customer base drives much more significant value over the long term.

So while it’s often argued that customer retention is better than acquisition, it’s more accurate to say retention is the foundation on which a strong growth strategy is built. 

As well as being the key to sustainable growth, existing customers are:

• Cheaper: The exact cost varies by industry, but whatever area you operate in, it’s universally more expensive to acquire than to retain.
• More profitable: Engaging existing customers presents opportunities for upselling, as they are 50% more likely to try new products.
• Likely to make repeat purchases: Highly engaged customers purchase 90% more often and spend 60% more per transaction, significantly increasing revenue.

Ok, so you don’t need any more convincing! You just want us to show you what it takes to turn your loyal customers into your biggest asset. Here’s how: 

Step 1: Understand your existing customers 

Avoidable consumer switching costs U.S. companies $136.8 billion annually, so you need to do everything you can to understand what’s driving your customers to stick or twist. And to gain the necessary insights, you need data. But simply monitoring purchasing patterns won’t give you all the information you need to nurture your customers from being passive shoppers to active advocates for your brand.

 Pay attention to:

• What your customers are saying about you on social media and in their reviews 
• Which customers are talking about you the most
• Which ones have positive sentiments towards your brand
• Which ones refer friends on a regular basis
• How much value their referral activity drives

Step 2: Turn your brand fans into advocates

Happy customers are your best advocates. They are more likely to recommend your business to friends and family, providing you with a highly effective, organic form of promotion. On average, referred customers spend 25% more on their first order, have 2x LTV and are 3x more likely to refer again. This method of spreading the word about your business also comes without the hefty price tag of traditional advertising.

You can use the information from Step 1 to build an advocacy marketing strategy that makes your customers feel valued and enthusiastic about your brand. There are many ways to do this, for a more detailed look, see our essential guide to customer retention. 

There are two main pillars of this strategy we can highlight here:

• Engage regularly - Create personalised campaigns that meet your customers where they are. Whether they’re telling everyone they meet how great you are, or passively buying the odd product every now and then, there are ways to tailor a nurturing message. 
• Use high-quality data to inform your CX - If your marketing strategy seeks to build loyalty, retention and growth through personalised experiences, it needs to be driven by in-depth, comprehensive customer data. Integrating this data into your marketing flows is a vital task.  

Step 3: Build your knowledge and improve your customer experience

Retained customers and the new customers they refer provide a wealth of information. By analysing NPS scores, feedback, buying patterns and how networks of referrals grow over time, you can optimise your retention and acquisition strategy, forging stronger relationships within your customer base and winning higher-quality new customers.

An advocacy marketing strategy to boost acquisition and customer retention

When you get customer advocacy and customer retention working together, you’ll create a powerful growth engine. Customer advocates:

• Stay with your brand longer, increasing lifetime value. 
• Lower your acquisition costs by bringing in new customers through their networks.

Mention Me has built the world’s first Customer Advocacy Intelligence Platform to help you turn brand fans into sustainable growth by giving you insights into the sentiments and motivations behind buying decisions.

Moving beyond the false divide between retention and acquisition creates a self-sustaining cycle of organic growth: new customers acquired through advocacy are more likely to become advocates themselves, building loyalty, enthusiasm and profitability into the fabric of your business.