Marketing
Does acquiring a new customer costs 5x more than retaining an existing one?
A gentle introduction to targeted marketing
The success of any business is dependent on two critical components: customer acquisition and retention. The key question here is which is more crucial, and which is more cost-effective. Acquiring new consumers can be incredibly rewarding, especially when your marketing efforts are paying off. Customer retention, on the other hand, is just as important, and loyal customers are often far more valuable than new ones. Most businesses prioritize new client acquisition and spend a lot of money to get as many as possible. So, in this article, we’ll look at ways to reduce acquisition expenses and create an optimal marketing strategy.
You’ve probably heard that depending on the industry, it costs 5–25X more to acquire a new customer than it does to retain a current one. The question here is does it need to be? I completely agree that acquiring is more costly than retention, but by how much? What can we do to cut this cost?
Thanks to advancements in analytics and machine learning, we can now utilize estimates of past impact to predict the future impact of various marketing approaches on sales, allowing us to cut down on acquisition costs.
So, what can we do to bring this acquisition cost down?
- Targeted Marketing — Most businesses have similar customer acquisition and retention goals, but are they easy to achieve? You’ve probably heard of businesses that spend millions of dollars on new customer acquisition only to fail. How did this happen? One-line explanation is that they lack targeted marketing, often known as targeted marketing.
This cartoon summarizes the well-known and widely employed marketing strategy known as “Spray and Pray.” To explain, a company cannot remain profitable by spending its marketing efforts on random people, as this strategy results in an extremely poor conversion rate. These non-targeted marketing approaches are one of the factors that make acquiring new customers difficult.
2. Marketing channel and campaign analysis — As acquisition does not always imply retention of these newly acquired customers, it is usually recommended to conduct a marketing campaign analysis based on projected CLVs. This assists us in determining how much your consumer is worth and can help to making better, more accurate investments rather than wasting money everywhere.
To be more precise, while determining how much to spend on acquiring a new customer, it is critical to consider the customer’s lifetime value (CLV), also known as lifetime value (LTV). Customer acquisition decisions should not be focused entirely on cost concerns; instead, they should be based on future value.
This is not to say that cost should be ignored; rather, an ideal position should be reached based on CLVs and budget constraints.
