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Customer Acquisition Vs. Customer Retention – 5 Best Practices to Increase Revenues

Here, we discuss the acquisition vs retention debate to help you choose the right approach for your business.

One of the most heavily debated issues in marketing circles is – customer acquisition vs customer retention. Here, we discuss the acquisition vs retention to help you choose the right approach for your business.

The Growth Equation

To fully understand acquisition (getting new customers) versus retention (getting old customers to come back and build loyalty), you need to understand your brand’s growth and revenues.

Here’s an equation to compute that:

Monthly Growth Revenue = (No. of new customers acquired in a month * Average spend for each new customer) + (No. of returning customers in a month * Average spend for each returning customer) + (No. of resurrected customers in a month * Average spend for each resurrected customer)

You need to understand this growth equation to decide, which category of customers matter the most for your business. Here are some best practices to help you make the most of customer acquisition and retention.

1. Identify what “Customer” means to your Business

Very often, businesses overlook the crucial step of defining what customers mean to their business and how to translate it to set the goals of their search campaigns. The definition of a customer varies from business to business. For instance, some enterprises define customers as someone who purchased in the last month, while others define customers as visitors who bought at some point.

For example, two customers purchased from you in the last month. One customer searches for your product using your brand name, while the other customer searches using a generic term. So, should you treat both these customers similarly or use different marketing strategies to acquire them? These are some aspects to consider while defining customers.

2. Understand the Purchase Path of Customers

To understand whether the amount you spend on acquiring or retaining a customer is worth it, you need to know your customer’s purchase path. Only when you are aware of their purchase pattern, you can justify the heightened costs of acquiring the customer.

Remember that most customers interact with your brand using multiple channels like – direct, search, email, affiliates and more. So, it’s essential to have a multi-channel attribution model to monitor and track performance across channels.

3. Create Tailored Campaigns to Support Different Audience Segments

Once you have identified your customers and tracked their purchase paths, segment your ad campaigns for each category of customers. Use features like RLSAs (Remarketing Lists for Search Ads) and Customer Match, etc.

Here are a few examples of how you can segregate audiences:

  • New and un-cookied customers (prospects) – This list consists of audiences who are un-cookied and have never purchased from you ever before.
  • New and cookied customers – This list includes customers who have visited your site, but have not made a purchase with you in forever or within a specific period, say in the last 180 days.
  • Returning customers – This includes audiences who have purchased within the last 180 days or so.

You can also further divide customers into dormant, high-value, high lifetime value, first-time buyers and so on.

4. Define Unique Goals for each Audience Segment

Once you have segregated audiences, the next step is to assign a goal for each audience bucket. The goal should be aligned with the campaign. Also, remember that there is a direct relationship between customer return and revenue. If you are solely focused on returning customers, then the return revenue will be restricted.

Generally, it costs more to acquire new customers than to retain existing customers. It costs 5x more to acquire new customers than to retain existing ones, according to a market survey.

5. Track KPIs for Success

Here are a few questions you must ask yourself as you evaluate your marketing campaigns: are we hitting return goals? Are new customers similar to your ideal customer profile? Are you increasing the total number of new customers acquired, while boosting profit levels? Have you managed to reduce the cost of returning customers? And so on.

Which one to Focus – Customer Acquisition vs Customer Retention?

It all depends on your growth equation. You must consider available resources, time and goals and decide what is best for your business. Remember that while it may make sense to focus on customer retention now, a few months down the line, once you have stabilized existing customer relationships, you may shift your focus to customer acquisition.

Finally, to build a profitable business, you must focus on both and make incremental tweaks to your marketing strategies every few months, depending on available data.

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