customer acquisition and retention

Customer Acquisition and Retention: Which Is Best For Success?

Customer acquisition and retention are two different strategies for business growth.

One strategy involves bringing customers in. The other strategy involves keeping customers around.

In this article we break down each strategy and show you which one is suited best for you.

Customer Acquisition

What is Customer Acquisition?

Customer acquisition is a company’s strategy by which it converts people unfamiliar with their company into paying customers.

Businesses typically have multiple channels by which they go about this, depending on their business model. Brick and mortar stores, service businesses and online stores can all have different business models and thus will all have different ways by which they acquire customers.

Customer Acquisition Strategy Examples

Your creativity is really the limit for the number of ways you can acquire customers. Below are some top channels by which to acquire customers:

Direct Mail Flyers

Direct mail flyers are sales letters mailed to targeted zip codes in order to increase brand awareness. They will typically contain some sort of coupon or discount. Direct mail companies are able to target zip codes near your business or zip codes that contain income levels that can correlate to your ideal customers.

Facebook Ads

Have you ever talked about a product or searched for it online only to notice the next time you hop on Facebook an advertisement for THAT EXACT PRODUCT? Feel like they were listening? Well, in a way they were. Facebook ads can target your ideal customers if you know a little about them such as pages they may like, their age etc. With tracking capabilities it can be much easier to see the results that your marketing dollars are producing (or not producing).

Google Ads

These are the ads that pop up at the top of search listings when you google a product or service. The business pays for each click of the browsers. These can be especially useful for local businesses that have several competitors and are looking for a way to stand out. Just be cautious as you can potentially spend a lot of money on these ads very quickly if there is a large population and a high search volume for keywords you are targeting. Similar to Facebook ads, you can monitor the metrics of well each ad is or is not performing.

Search Engine Optimization

Search engine optimization is a strategy to make your site appear to have the most expertise, authoritativeness and trust to search engines. The more ways you can prove to Google that your site meets that criteria in your industry, the more likely you will rank higher in search results for particular searches. This can be a great long-term play because as you build more and more authority over time, your site will not only continue to rank in the top spot, but it becomes that much more difficult for competitors to rank above you.

Outbound Sales

Believe it or not, many businesses still thrive from outbound sales. Paying someone a commission to bring you customers is not a bad strategy for many businesses, especially high-ticket businesses. In this method, you can control exactly who you make contacts with. If homeowners are your ideal customers, door knocking can be a great way to generate sales.

Content Marketing

This can be the most cost effective form of marketing as all it takes is consistent content creation on multiple platforms to drive traffic organically. You may want to take note of where your customers may be at and focus more heavily on those platforms. For example, if you have a product or service that your target market is high level executives, you may want to put more of a focus on LinkedIn. If you have a local restaurant you may want to focus on Facebook and Instagram and engage with your community in that manner.

How To Measure Customer Acquisition

The primary metric to focus on is how much it costs to acquire a customer. This is commonly referred to as Customer Acquisition Cost or CAC.

Formula for CAC

formula for cac


CAC Example:

Chloe’s boutique just did a campaign of direct mail flyers for her local retail clothing shop. She sent 1,000 flyers to local residents for $1,500.

She was able to bring in 20 customers from those flyers.

$1,500/20 = $75

Her cost to acquire a customer during that campaign was $75.

What Is a good customer acquisition cost?

A good customer acquisition cost is lower than the lifetime gross profit of your typical customer. That can mean many different numbers to many different businesses, but that is the ideal cost. If it costs more to acquire a customer than the average customer lifetime gross profit, you are quickly heading into the negatives. We will learn more about lifetime gross profit in the next section, so keep reading!

Customer Retention

What is Customer Retention?

Customer retention is a company’s strategy to convert people who have purchased from them into repeat customers and die-hard fans.

This is one of the most overlooked strategies in businesses and it can be costing a lot of money.

Think about this, the probability of converting an existing customer is 60-70% vs the 5-20% for a new customer.

What does that mean? It means that you are 3-20 times MORE LIKELY to sell your good/service to someone who has already purchased from you vs someone who has never heard of you before.

This is the true magic behind customer retention.

Top Customer Retention Strategies

Text Message Marketing

By far the best way to stay in touch and engaged with past customers is through text message. With a staggering 98% open rate, text messaging is only channel that you can confidently send a message out and know it will get read. At less than a few cents per message, it is also the most cost effective way to reach your audience. It is not unusual to see a business reach the point where their text subscribers are 20-40% of their monthly revenue.

Text2VIP has been around since 2009 so we know a thing or two about customer retention and text marketing. We have a solution for how text marketing works for just about any business and business model. If you’d like to see a demo of how it works, schedule one here!

Email Marketing

Email is another means by which to get your customers to purchase again and again. With 20-30% open rates, email is not quite as powerful as texting, but is nothing to to underestimate. In fact, emails have been shown to drive $36 in revenue from every $1 spent on email advertising.

When combining email with texting, you can create a powerful retention strategy.

Rewards Program

Sometimes it may make sense for your business to offer customers a reward for spending more with you. These can range from point-based rewards to tiered loyalty rewards. Starbucks has done a phenomenal job of creating a reward program for its customers. Purchasing different items can reward you different amounts and eventually you will be able to redeem for your favorite beverage (which you’re likely going to buy regardless).

Mobile Applications

Driving customers to your own dedicated mobile application can be a good way to remain in contact and also track rewards. The downside to mobile apps is that they can be costly to develop and maintain and for your business to get the maximum benefit, the users need to have push notifications turned on. More and more mobile users are disabling push notifications every year as they can be just one more area of distraction.

How To Measure Customer Retention

The most important metric for customer retention is Customer Lifetime Value or CLV. This is how much money a customer spends with your business over his/her purchasing lifespan.

How to calculate customer lifetime value

formula for ltv


Customer Lifetime Value Example:

Continued from the first example with Chloe’s boutique, let’s say she is able to track that the lifetime value of her typical customer is $300. Her store has 50% gross profit margins, so each customer will bring her a Lifetime Gross Profit of $150.

With this information she can now assess her customer acquisition cost of each channel and see if they are worth pursuing or not.

The direct mail flyers acquired customers at $75 each and with a $150 lifetime gross profit it may make sense for her to run this campaign again at other local zip codes.

What is a good customer lifetime value?

A good customer lifetime value is one that is consistently increasing over time. The actual numbers will vary for each business, but the facts remain the same. You should be constantly striving to increase the lifetime value for your customers every day. If you’re consistently able to increase their value over time while keeping the acquisition costs lower, your business will see massive success.

This is the foundation on which many of the world’s most successful companies have been built.

Should You Focus on Customer Retention or Customer Acquisition?

The data points to customer retention being the strategy to put a majority of your energy into.

Competitors will continue to pop up around you. Costs on platforms such as Google and Facebook have continually gone up over the last several years. It’s no secret that over time it becomes more costly to acquire customers.

It is much easier getting customers to spend more money over time with your business than it is to try to persuade more people to become customers of your business.

It can be a challenge trying to get your customer acquisition cost as close to 0 as possible, which is the goal. On the other hand, many marketers and business owners have found it to be much more effective by increasing how much each customer spends over time.

Retention Helps Acquisition

“The business that can spend the most to acquire a customer- wins.” -Dan Kennedy

This quote by one of the greatest marketers/copywriters of all time may not make sense now, but I hope I can explain this in an example that will help.

Let’s go back to the example of Chloe’s boutique.

She has found that across all of her sales/marketing channels that it costs her on average $75 to acquire a customer.

Her competitor on the other side of town, Clair’s boutique, has recently started advertising her boutique online.

Clair is spending $85 to acquire a customer and is bringing more customers to her store than Chloe because she is outbidding Chloe and paying more for eyeballs to see her products.

They both have the same lifetime value at $300 and the same gross profit margins of 50%, meaning they have a lifetime gross profit of $150. This means they can both spend up to $150 to acquire new customers.

Chloe focuses her efforts on improving customer retention strategies and within a month figures her new lifetime value is $500 with a lifetime gross profit of $250.

She is now able to spend $250 to acquire each customer whereas Clair can still only acquire customers for $150 each.

Chloe is now able to spend much more money on advertising which will create a point to where Clair’s boutique can’t compete on the spending. Chloe is now able to take over the market in their city and grow at a faster rate.

This simplified example is essentially how many of the largest companies are using customer acquisition and retention to grow their businesses to 7, 8 and 9 figure yearly revenues.


Although it is ideal for both customer acquisition and retention strategies to be implemented in your business, customer retention can be the more powerful strategy to focus on for growing your business. With a powerful enough customer retention strategy, you can get paid to acquire more customers.

I hope this article has been helpful, and again if you would like to take advantage of our FREE 14 day trial of the most effective customer retention method, you can find that information here!

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