Client Acquisition vs Client Retention: Which Is More Vital to Jumpstart and Fuel Business Growth?
In the business world, client acquisition and client retention are two essential strategies that can influence the success of your company. While both are important, many companies struggle to decide how to allocate their resources and efforts.
Client acquisition is crucial to increasing your client base and expanding reach, while retention is vital to maintaining a steady stream of revenue and building client loyalty for the long term. There are several factors to consider, including your industry, stage of growth, and competitive landscape.
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Client Acquisition vs. Client Retention
Client acquisition and retention are two pillars of business. Client acquisition is the process of attracting new clients and retention is the process of keeping the clients you have and earning their loyalty.
Acquisition is also the first step in building a successful business. The marketing strategies and processes involved work to bring in new customers and increase brand awareness, such as:
- Social media marketing
- Search engine optimization (SEO)
- Referral marketing
- Paid advertising
- Content marketing
- Public relations
Companies spend a lot of time and money on client acquisition to build a client base that allows business to grow and prosper. Globally, the marketing spend for client acquisition is valued at around $626.86 billion in 2023.
Conversely, client retention is the process of encouraging existing clients to continue making purchases and staying loyal to the brand. This often includes strategies like:
- Loyalty programs
- Personalized client experiences
- Exceptional client service
- Client feedback
- Consistent communication
Client retention is vital for businesses because it’s more cost-effective to retain existing clients than to gain new ones. It can cost up to five times more to acquire a new client than to put those efforts into retaining a current one.
Keep in mind that these two processes are not mutually exclusive. A successful marketing strategy includes a healthy balance of acquisition to draw clients in and retention to ensure they stick around for a steady revenue stream.
How Do Acquisition and Retention Drive Growth and Revenue?
Acquisition and retention are two sides of the same coin. If either one is absent or underutilized, you can’t reach your goals. They do drive growth and revenue in different ways, however:
Acquisition Grows the Client Base
Businesses need clients to survive. Just a few clients may be enough to get a business off the ground, particularly service-based businesses like law firms or public safety software providers, but at some point, new clients are necessary to continue growing and create new opportunities.
Retention Grows Client Lifetime Value
A client’s lifetime value (CLV) is the projected value of that client over the course of the business relationship with your company. Loyal customers make consistent purchases and naturally offer more value than a one-time buyer for most business models. Strong client retention strategies enable your business to maximize CLV by encouraging repeat purchases or subscription renewals.
Is Client Acquisition or Client Retention a Better Use of Resources?
Any company, no matter how big, has a finite marketing budget. It’s important to know which process will give you the most value for your investment. Here are some factors to consider:
Generally, client acquisition is more expensive than retention. With new clients, you are starting from scratch to build a relationship, showcase your brand, and earn the sale. With retention, some of that work is done for you, so you get more value for the time, money, and effort that you put in to earn the sale.
Return on Investment
The upfront costs and time for client acquisition can be unprofitable initially. You’re putting out time and money before you begin to see the returns, which may come months or even years later. In this respect, retention offers a better return on investment (ROI) than acquisition, since you’re earning sale after sale with fewer barriers to get the client to say "yes."
Loyal customers naturally improve your word-of-mouth referrals, which are one of the most effective forms of advertising. One study found that 92% of global consumers trust the referral of a friend or family member over company advertising.
Client retention efforts nurture referrals by delivering exceptional client service and results that encourage them to not only stay with your company and make repeat purchases but recommend your company to others. And best of all, this marketing is a free bonus that comes with retention.
Should Client Acquisition or Client Retention Be Your Priority?
As mentioned, you need both client acquisition and retention for success. But depending on the stage of your business growth, you may need to devote more of your resources to one or the other.
Client acquisition should be a focus for your business during the early stages, when you’re looking to expand your client base, or when you’re venturing into new markets. At these points, you don’t have many existing clients and need to attract them.
You should also focus on client acquisition if you’re seeing a negative trend in sales, loyalty, or referrals and too much reliance on a few key clients. If so, it may be necessary to shift your focus to attracting new clients to offset the loss.
Here are some circumstances when it makes sense to focus on client acquisition:
- When you’re launching your business
- When you’re looking to expand
- When you see a decline in sales
- When you need to diversify your client base
Client retention should be a priority if your business already has a strong client base and wants to maintain or grow it. When you already have loyal clients, you’re more likely to generate repeat business and positive word-of-mouth referrals to continue to attract new clients. Loyal clients also spend more money – on average – and purchase higher-margin products and services.
Retention is also a key factor for businesses that operate in competitive landscapes, because switching costs for clients tends to be low. It’s more important to keep these clients happy to prevent them from leaving your company and going to a competitor. In addition, if you have high client acquisition costs, focusing on retention helps you get more “bang for your buck” out of your client acquisition investment.
Here are some circumstances when it makes sense to focus on client retention:
- When you have an existing customer base
- When you operate in a competitive market
- When you have low client switching costs
- When you have a high customer acquisition cost
Client Acquisition vs. Client Retention: Prioritize Both
Even if one aspect of your strategy is weighted more toward acquisition or retention, your business should allocate resources toward both. If you want to grow your business successfully, it requires a steady stream of new clients while keeping your current ones.
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