High customer acquisition costs vs. retaining existing customers: Which investment is more worthwhile?
One goal that many entrepreneurs pursue is the acquisition of new customers. However, the cost of customer acquisition is known to be many times higher than the cost of retaining existing customers. Especially in times of CRM systems & co., any calculation of Customer Lifetime Value (CLV), Customer Acquisition Cost (CAC) and other key figures is possible at any time, but the question arises: Should you still accept these high acquisition costs?
Customer acquisition: the key differences
So what differences are relevant for you? We have briefly summarized and described them all in more detail. At the end of the article, you will find a table with an overview of the most important differences.
Customer acquisition costs:
Revenues & Expenses
Investing in customer loyalty leads to more revenue in the long term, as loyal customers spend more money. They accept higher prices because they trust you. However, their expectations in terms of quality and service are also higher, as they already have certain expectations of your company.
Spending on marketing measures is comparatively lower than for new customers, as personalization and a targeted approach can keep wastage to a minimum. Investing in customer acquisition leads to short-term success and increased sales. If new customers do not become regular customers, the customer lifetime value suffers from the high costs of acquiring new customers.
Customer acquisition costs: Communication
Customers who have already established a relationship with you want to be addressed in a targeted manner and have their preferences taken into account. They either share these explicitly with your company (so-called "zero-party data") or can be found out through their previous purchasing behavior (e.g. purchasing frequency, popular product groups/products).
This targeted, personalized approach is initially not possible for new customers. As a result, marketing measures are not equally relevant for all potential new customers.
Even if certain demographic data is available, such as age, it is usually not possible to set up accurate communication measures. High market research costs are necessary to tailor these to the target group as well as possible.
Customer acquisition costs: Recommendations
Satisfied, loyal customers become brand ambassadors. Since purchasing decisions are often not made alone and the opinions of the personal environment are taken into account, recommendations from regular customers have a considerable impact on your customer acquisition. And at no cost at all. Good customer retention therefore also reduces the overall costs of acquiring new customers.
Customer acquisition costs: returns & feedback
If a new customer has a shopping experience that does not meet their expectations, in many cases they will not shop with you again. As this is the only experience they have had with your company, it is assumed that this will happen again in the future. This factor is particularly important when using a service. Regular customers who have already been satisfied with your services several times and come back to you again and again will forgive even the occasional mistake. This is what makes a good customer relationship.
They give you valuable feedback and suggestions for improvement because the relationship with your company is important to them. It is therefore particularly important to take customer feedback seriously. Appreciate it when customers take the trouble to tell you about a problem and give you feedback.
These customers obviously want you to improve. In most cases, new customers won't do this and will go to one of your competitors next time.
The importance of customer loyalty: Why are regular customers so valuable?
Regular customers make a decisive contribution to long-term, stable sales, as they can be advertised to specifically and their preferences and wishes are known. As loyal customers usually rely on the quality and trust of a company, they are not looking for the cheapest price.
Advertising costs are also usually lower: since the cost-intensive acquisition of new customers is no longer necessary for regular customers, customer acquisition costs (CAC for short) are lower than for new customers. No leads, no CRM, no targeted management of the sales process: Instead, it is often about simple follow-up sales that bring with them a high probability of closing the deal.
The relevance of referrals should not be underestimated. These no longer take place exclusively during coffee chats with neighbors, but in most cases digitally. Every company should therefore also take a closer look at the topic of digital customer loyalty.
Regular customers, i.e. long-term satisfied customers, recommend your product to others and thus actively contribute to the acquisition of new customers. Loyal customers are also more forgiving of mistakes and provide the company with important suggestions for improvement.
Successful customer acquisition as a prerequisite for customer retention
Both customer retention and customer acquisition are important marketing tools to remain competitive as a company. It is clear that you first need customers in order to be able to retain them. Every company must therefore bear the high customer acquisition costs at the beginning in order to build up a customer base.
So should companies with an existing customer base do without acquiring new customers altogether? No, it is important for every company to continuously acquire new customers. But if you focus on customer loyalty, this often happens all by itself through recommendations.
