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Customer Acquisition Really Stinks Sometimes. Here's Why

6 minute read
Michael Mathias avatar
There's nothing like the rush of customer acquisition for marketers. But is it worth the time and effort?

Customer retention is simply not as sexy as acquisition. It’s a bold statement, but it’s true. Acquisition is exciting, thrilling. Marketers get a gleam in their eyes when they talk about customer acquisition strategies. They spend endless hours devising new ways to hunt down and capture new customers. 

And, these endless hours are frequently a waste of time.

See, too often the forgotten stepchild to acquisition, retention marketing, has much more to offer than initially meets the eye. For instance, significantly more profitability, for a much lower cost.

The Math of Customer Retention

It’s seductive to say, “Let’s get new customers,” until you look at the math. New customers are expensive.

Customer acquisition requires throwing money across marketing channels and tactics until you get someone to — at last — take a bite. Whether they take a huge bite or just a nibble, the acquisition spend remains the same.

Yes, marketers will always need to pursue customer acquisition goals. BUT, no matter how you slice it, acquisition loses money finding new customers, while customer retention grows existing customers for a whole lot less. 

Here are a few reasons why.

Related Article: Where Are Marketing Leaders Focusing, Retention or Acquisition?

Existing Customers Are More Willing to Click 'Buy Now'

According to the book Marketing Metrics, the chance of making a successful sale to an existing customer is 60% to 70%. For new clients, that percentage drops to a depressing 5% to 20%.

Existing customers are not only 50% more willing to try new products or services. They are also happy to spend 31% more when they do.

Retention Marketing Generates More Profit 

Depending on your sales costs, it frequently takes several transactions before a new customer becomes profitable. By pivoting from acquisition to retention strategies, organizations could achieve a larger benefit for a fraction of the cost.

Just a 5% increase in retention leads to more than a 25% increase in profit, according to Bain & Company.

Bain's data also shows that repeat customers spend up to 67% more in months 31 to 36 of their brand relationship vs. the first six months. It varies throughout verticals. In apparel alone, a customer’s fifth purchase is 40% larger than their first, and their 10th is 80% larger than their first.

Related Article: How AI-Based Marketing Can Improve Customer Retention

Good Retention Marketing Naturally Becomes Acquisition Marketing

Satisfied repeat customers turn into acquisition marketers on your behalf. Uber's 4,000% growth case study in India demonstrated this. Their success hinged largely on their referral program. Sure, the company initially lost money by giving a free ride to an existing customer and each rider they referred. However, they made their money back within a couple of rides and gained a loyal customer who will use the app for years. At the same time, they cemented a relationship with an existing customer.

To see the success of retention marketing in action, we need look no further than the king of ecommerce itself, Amazon. With Amazon Prime, the ecommerce giant has found a way to secure their most loyal customers and extract even more money from them.

Learning Opportunities

Ninety-one percent of Prime users don’t even consider looking at another retailer when making a purchase. They go straight to Amazon. And, Prime members spend nearly four times more per year than non-Prime members, in addition to their $100+ membership fee.

The value of customer retention is evident. By getting your existing customers to spend more frequently, you will be more profitable, as you’ve reduced the acquisition costs.

Related Article: Why Marketers Need to Obsess Over Net Revenue Retention

Rethinking Retention: Strategies for Success

Retention is critically important for both B2C and B2B companies. In B2C, volume is in your favor. Due to the nature of B2C, you sell to a higher volume of customers making smaller purchases. Your mission is to increase Average Order Values (AOVs) and increase order frequency.

By offering a subscription, you can achieve both. Once you have customers on a subscription, they instantly become more sticky because you’re making it easy for them to reorder. Now, your goal is to get them to continue on with their subscription with related upsells, surprise discounts for new subscription products and one-click “add to your subscription” buttons. There’s never been a better time to introduce a subscription offering, with subscription ecommerce experiencing unprecedented 41% growth during the pandemic.

Loyalty programs also make B2C customers stickier. Nearly six in 10 loyalty program members purchase from the brand on at least a monthly basis. Personalization plays a role here, too. Even Prime can’t take all the credit for Amazon’s success. Thirty-five percent of the items purchased on Amazon initially came from their recommendation engine.

Retention in B2B: The Secret Weapon

Admittedly, B2B organizations have less volume, but they have a secret weapon: stickiness. Even though you may have fewer accounts, they typically will spend more with you. Once you’ve captured the relationship, all you have to do is make it easy for them to buy more, and more often. They'll be likely to do so.

Self-service portals make it easy for a retailer or sales rep to reorder, review order history, pay invoices, engage with reps and receive AI-driven product recommendations intuitively. This makes these retailers or reps quick to become loyal, return customers.

Retention marketing in B2B is less about getting new customers than selling better experiences (ease-of-use, speed, loyalty) to existing customers. How do you get someone who buys three times a year to buy four times a year? How do you get that next item in their cart, or bump someone up to the next service tier?

Offer free trials for higher service tiers without headache-inducing contracts. Include upsells in their cart and throughout the self-service B2B portal. Let customers know when you have something new on offer, and make sure they know they get an exclusive discount or first-access for being an existing customer. They just have to act now.

Whether you’re B2B or B2C, retention is important. Your task is to create the addiction to the convenience, be it through subscription, easy reordering, or personalized upsells.

Conclusion: Road to Revenue Starts With Retention

The essential formula of retention marketing is this: What does it cost to get someone to buy one more time, compared with how much it costs to get a brand new customer? Once you know the answer, you can dive in headfirst with customer retention strategies. This will help drive revenue that you can funnel back into both retention and acquisition.

About the author

Michael Mathias

As chief executive officer of digital agency Whereoware, Michael Mathias leads Whereoware’s strategic vision and culture of innovation, comprehensive digital marketing, and flawless performance. Mathias comes to Whereoware with an impressive track record accelerating growth for companies at all stages, with expertise spanning marketing, software, professional services, big data, analytics, and technology.