Customer Acquisition vs. Retention Costs
Every business needs to balance their acquisition and retention efforts to maximize revenues and lifetime customer value.
Customer Acquisition and Customer Retention
Customer acquisition and customer retention are two metrics used mainly to determine the return on investment (ROI) for efforts to monetize consumers. Both are essential numbers to track since they will show shifts in the market or problems with a marketing plan. The numbers are different in a few ways.
Calculation Customer Acquisition Cost
Customer acquisition is the cost of converting a person into a paying customer. Determining the cost of acquisition requires dividing all expenses dedicated to acquisition by the number of new customers acquired over the same period. Acquisition expenses include marketing, promotions like discounts, labor and any advertising targeted at non-existing customers. High customer acquisition numbers could indicate demographic shifts, ineffective marketing or problems with core products and services.
How to Calculate Customer Retention Costs
Customer retention is the cost of keeping an existing customer purchasing. Calculating retention costs is not easy. There is no commonly accepted formula. Retention figures can be calculated using total purchases over a period mitigated by retention expenditures, churn, acquisition costs and general overhead. Customer retention directly affects lifetime values (LTV). High retention costs lower margins and profits since each subsequent purchase is actually worth less overall.
Balancing Customer Acquisition Cost & Customer Retention Cost
Every business needs to balance acquisition and retention costs. Acquisition is important to draw in new consumers and expand the base. Retention is normally less costly and builds loyalty and the brand. Retention also often relies on far less price sensitivity from customers so that the long-term costs are recouped through sales. It is essential to track the ROI for both customer acquisition and customer retention. Poor ratios in either area are strong indicators that more research is necessary to see what is changing in the market or what is happening within the business.
Optimove's Customer Acquisition & Retention Software
Optimove combines predictive customer modeling and advanced multi-channel campaign automation technologies to help businesses maximize customer loyalty, retention and lifetime value. Contact us today – or request a Web demo – to learn how you can use Optimove to acquire more customers, increase the spend of existing customers and reduce customer churn.
Last updated July 2018