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Considering Retention vs Acquisition Costs

Considering Retention vs Acquisition Costs

Gideon Luke

Quite often we see customers who focus on new business and the acquisition costs, but have you ever compared your acquisition costs with retention costs?

What are retention costs?

Upselling, Loyalty programs, physical deliverables, service costs that support the customers' purchase - any marketing investment made on existing customers.

These short formulae may help;

Retention cost = Total retention costs / Number of customers retained over a specific period of time (which does not include new customers in that time period)

Acquisition cost = Amount spent generating a marketing qualified lead + The cost of marketing conversion

Now, can you see if your retention costs are less than acquisition costs? They should be.

Research tells us is the new customer acquisition cost is 5-25 times higher than retaining and farming existing customers. Harvard Business School has also published materials indicating a 5% increase in retention can translate to 25%+ revenue increase so it's worth checking the balance of activity.

If your customers base is churning then your acquisition costs go through the roof as effectively, you are repeatedly trying to fill a leaky bucket! Whereas retained and "loyal" customers help your business grow.