New and repeat customers are two very different audiences with different needs. While debate has long raged over which audience should be the main focus of your time and money, the emerging consensus is that each type of audience holds higher importance at different stages of a business’s lifecycle. Below, we explore both customer acquisition and retention, when to focus on each, and how to do so effectively.
Customer retention involves concentrating on the base of customers who have already purchased from you and prompting them to make repeat purchases. Many companies overlook their past customers in favor of attracting new customers who haven’t heard of or purchased from them before; however, this approach can lead to unnecessary missed opportunities. In fact, according to research by Bain & Company, increasing customer retention rates by just 5% can increase profits by 25% to 95%.
When to Focus on Retention
- If your budget is smaller. Customer retention initiatives tend to cost less than their acquisition counterparts, so if your cash flow is low, invest here first.
- If your products are consumable. If you sell products that can be used up, your goal should be to convince customers who have purchased them before to restock.
- If your repeat purchase rate is low. This could indicate that you need to examine your product quality and service experience for areas to improve before trying to scale up.
How to Retain Existing Customers
- Solidify your brand story. Customers who know what your company is about (other than making sales, of course) will be more invested in your brand. If your company’s purpose is to sell easily-manufactured products to price-conscious individuals, make sure your customers know that so they won’t expect luxury-quality goods.
- Step up customer service efforts. Sometimes experience speaks louder than the product itself. Make sure your shipping information is communicated promptly, your products are packaged well, your return policy is easy to find, and you are able to quickly resolve any problems that may arise.
- Ask for feedback. This demonstrates to customers that you genuinely care about their experience and improving your business. Take each piece of feedback with a grain of salt—some customers cannot be pleased, but others may have vital suggestions that could greatly improve your products or customer service as a whole.
- Start a loyalty program. A loyalty program is a great way to keep customers coming back. Whether you are providing membership-only discounts or rewards for every nth purchase, customers will feel valued and appreciate being rewarded for their continued support of your business.
- Send regular email campaigns. Newsletters, promotions, and educational emails will keep your business at the top of your customers’ minds. However, any email campaign is only as good as its relevance. Pay attention to open and click through rates to ensure that the content you’re sending is resonating with your audience.
Customer acquisition involves seeking out customers who have not purchased from you before and prompting them to convert. New customers are critical to any business starting out or looking to scale; however, Hubspot reports that the cost of acquiring new customers has increased by over 50% in the past five years. Before deciding to invest your time and efforts into customer acquisition, make sure your business is in a good place financially and time-wise.
When to Focus on Acquisition
- If you have just started your business. If your store has had few (or no) customers so far, then finding and enticing them to purchase is the logical first step.
- If your repeat purchase rate is high. For a business that is well-established with an already-decent repeat purchase rate, attracting new customers is a good next step.
- If your company can handle scaling upward. Examine your budget and bandwidth. If you have some wiggle room and/or the ability to spend more time and money on the fulfillment process, you’re in a good place to consider scaling up.
How to Acquire New Customers
- Optimize your SEO. Making sure that your store can be found online is the first step in acquiring new customers, and investing in the organic side of this process is critical. Audit your existing SEO practices to see where your site stands so you can set up a good foundation and make changes in areas that are lacking.
- Invest in paid advertising initiatives. Paid advertising, whether through PPC ads in search or through other avenues like print or commercials, will also help get your name out to new customers—but at a higher price. Make sure you only pay for advertising that will reach your target market, and not on people who don’t need your products at all.
- Start a referral program. Customers who like your products will be happy to spread the word about your business—especially if they have an incentive to do so. Offer a reward for referring a certain number of new paying customers to your business, and offer first purchase discounts for existing customers to pass along to incentivize their network.
- Build your review profile. Customers newly introduced to your business will likely research your business before purchasing to make sure they can expect a good experience. Ask your existing, happy customers to review your products on your site—and your business itself on external sites—so that your business is painted in a good light.
- Get social. According to Statista, global internet users spent 144 minutes on social media sites every day on average. By regularly posting relevant content on social sites that appeal to your audience, you can build a brand following in an area where people aren’t necessarily thinking about buying—and then drive them to purchase anyway.
By paying attention to the current state of your business, you can determine whether customer acquisition or retention should be your main focus in the short term—and set your business up for success in the long term.