Why You Should Prioritize Customer Retention Over Customer Acquisition 

Sales cure all — a classic adage in the world of business. For the most part, it’s still valid. Without sales, there are no new customers. And without customers, there is no business. However, it’s been shown to be more important to prioritize customer retention.

However, there is one thing that your sales team alone cannot cure. And that is customer churn. If customers don’t return, no amount of new customers can help achieve a steady growth rate for your business.

Yet many sales and marketing leaders in organizations are always busy looking “out there” for new customers instead of introspecting and improving customer retention. In fact, a paltry 40% of businesses are equally prioritizing both customer retention and acquisition.

Don’t let your company fall into the same trap. You should find ways to delight and generate more revenue from your current customers than relying solely on acquiring new customers. Below, we’ll look at the top reasons why.

Why You Should Prioritize Customer Retention

There are several benefits that make customer retention critical to your company’s bottom line.

Every loyal customer presents an opportunity to develop a brand advocate, get more referrals, and encourage word-of-mouth marketing. Let’s take a closer look at each key advantage, one by one.

Get positive word of mouth.

75% of customers loyal to a brand will refer their friends and family to the same. And this desire to spread the word comes from the customer retention efforts of the brand.

A decision to prioritize customer retention initiatives has the power to convert customers into brand advocates, increasing your likelihood of gaining referrals. A recommendation from a third party can be the final nudge that moves a prospect to action and persuade them to buy from you.

When customers are happy with your brand, you can even launch a referral program to realize their full potential in promoting your business. Ellevest is a great example. The company rewards both the referrer and the referee for each successful transaction.

To launch a similar program, you can use a tool such as Early Parrot. It lets you create referral marketing campaigns. These can seamlessly integrate with any of the major website builders in the market.

However, you can’t expect such an initiative to work without a focus on retaining customers. Disengaged customers are less likely to tell others about you, even if you reward them for doing so.

Boost conversion rates.

A customer who has bought from your business twice is 9 times more likely to purchase again than a new buyer, as per a study by Adobe. In other words, current customers help you get more conversions and make more money.

CVS Pharmacy is great at targeting present customers, for example. The company sends customers personalized email messages with deals and coupons based on what they have purchased before.

An email campaign is not the only way to target current customers. You can also insert Google Ads or Facebook pixels within your website’s code. These snippets can be used to run advertising that targets people who have already visited or purchased from your website.

Since the customers are likely to need similar products again, a retargeting campaign allows the company to bring customers back and sell more in the process.

Increase your customer lifetime value (CLV).

In case you’re unaware, customer lifetime value is the total monetary worth of a customer during the period of their relationship with your business. And it’s an important metric that speaks to the overall financial health of your company.

A recent study suggests that 37% of buyers will shell out more money on a business if they’re loyal to the brand. So repeat customers are not just more likely to buy from you as we discussed above, but they are also inclined to spend more.

The result? High CLV and low cost of marketing, which brings us to the next benefit of prioritizing customer retention.

Reduce marketing expenses.

It is widely agreed that customer acquisition costs more than customer retention.

When you acquire customers, you also get to learn about the best ways to reach them. And you have the contact information to reach them again and again in a cost-effective manner.

Acquiring new customers, on the other hand, requires you to allocate a dedicated budget to sourcing new leads, advertising your website, lead nurturing, and customer onboarding. No matter how careful you are, you are always left with a huge dent in your pocket.

Get predictable revenue.

Running a business is a game of risk and uncertainty. But that doesn’t mean you can overlook ways to minimize them as much as possible. And that’s another aspect where customer retention shines more than customer acquisition.

As we discussed above, happy and satisfied customers will keep buying from you again and again. As a result, your overall revenue is more steady and predictable.

In fact, annual subscriptions — a recent business model that has taken the world by storm — relies solely on a business’s ability to retain customers as the main source of growth.

When a customer pays for the annual subscription, the business has a certain amount of assured income for the whole year. And at the end of 12 months, customers renew their subscription based on their needs and level of satisfaction with the product or service.

The global SaaS market (subscription software) is projected to touch $437 billion in 2025, at a CAGR of 12.5%. So you can imagine the kind of growth possible with retaining customers for the long-term.

By retaining customers, you can say goodbye to your day-to-day sales worries and focus more on the future vision of your brand.

Shield your business from the competition.

The more customers connect with your business, the more habitual they get in terms of preferring your brand. They do not get easily swayed by other brands as long as your product or service is working fine for them. And this is a huge competitive advantage to have in a fickle world.

A brilliant example of a brand that builds customer loyalty with an authentic connection is Bombas. The company openly communicates its philanthropic mission of donating to the needy, which plays a big role in customer retention.

When customers are served with stories that help them connect with a brand’s mission and values, they experience a strong sense of loyalty.

Improve business operations.

82% of consumers agree that they would move to another brand if they experience poor customer service from the brand they were loyal to. As scary as it seems, the truth is that it takes just one bad experience to push buyers away from your business.

That means you must do everything in your power to ensure that your business operations are aligned with customer preferences. And that’s another area where customer retention can help.

Loyal customers give you a valuable source of feedback that helps improve your products, services, and overall customer experience.

Case in point: Southwest Airlines. The company quickly follows up with customers who voice a negative experience or a piece of feedback, even on social media platforms. In doing so, it gets insights straight from the customers instead of relying only on internal research and development.

Wrapping Up

The value of acquiring new customers can’t be denied. However, it’s equally important to level up your customer retention strategy. If you’re focusing only on empowering your sales reps while your customer success team is grasping at straws, then you’re compromising your organization’s potential to succeed.

The solution? Give equal weightage to customer retention. As we discussed above, customer retention is crucial for the long-term sustainability of your business. Moreover, it gives you new opportunities to leverage the trust you have built with current customers to take your business to the next level.

After all, customer retention is what differentiates one-hit wonders from strong and stable brands that dominate their industry for decades.

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