Customer Acquisition vs. Customer Retention: Process & Cost Macromark 2020-04-20 00:45:38 customer acquisition,Our Blog

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Customer Acquisition vs. Customer Retention: Process & Cost

Apr 14 | By:  Categories: customer acquisition, Our Blog

Two of the most important strategies for any business are customer acquisition and customer retention. Converting leads and prospects into paying customers, and then nurturing and growing the customer relationship to prevent defection are paramount for continued business success.
But like any business strategy, there’s a process and cost, followed by a return on the investment that needs to be measured to ensure profitability. We’ll delve into the process and costs for both customer acquisition strategies and customer retention strategies below.

What Is the Process for Customer Acquisition?

Acquiring new customers is the first strategy for any business and probably one of the most daunting challenges. Following these five guidelines can help you with the process.

Define Your Business Strategy

The first step is to define a business strategy that gives you an idea of what your goals are based on your current strengths, weaknesses, opportunities, and threats. These goals could range from increasing brand awareness, increasing subscriptions, increasing revenue, or any other aspect of acquiring business. The key is to stick to the strategies to help achieve those goals.

Define the Target Prospects

This is a key part of the process because your target might not always be easily defined. There are many aspects you need to keep in mind. In direct marketing, for instance, you can get assistance in renting prospect lists from a list broker company like Macromark. In any case, you need to accurately match your product or service offering with a targeted demographic that will convert to customers.

Pre-Estimate the Customer Acquisition Cost

Customer acquisition cost (CAC) is what you are willing to spend to acquire a customer. This can be done in a simple calculation:

(Marketing Costs + Sales Costs + Salary Expense) / (Number of New Customers)

This calculation will help you determine your ROI. If the CAC is higher than the lifetime value (LTV) of the customer, you will need to reduce one of the expenses.

Decide on the Right Acquisition Channel

Once you figure out your target market, you’ll then need to decide the best way to communicate with them through the correct acquisition channel. This can be anything from direct mail, newspaper ads, community service, and events to merchandising, SEO, email marketing, and strategic partnerships. Note that you don’t have to stick to just one channel but should avoid ones that aren’t cost effective to your business.

Hire Trained and Talented Staff

Once the strategy is in place, it’s key to find the right people to put the plan into action, whether it’s brand strategists, designers, copywriters, researchers, writers, or more. You can also outsource some of these responsibilities to service providers like media agencies, list brokerages, and design houses.

What Is the Process for Customer Retention?

So now that you’ve been able to get a steady flow of new customers into your business, you need to develop a strategy to keep them happy and prevent them from leaving for your competition. These four strategies will help you start a solid customer retention process.

Get to Know Your Customers

The first and most important step is to know your customers. Sometimes this can be done with direct interaction like a survey or a face-to-face meeting. When this isn’t possible, you need to analyze the data to see their behavior. Customer satisfaction is nice, but gauging customer intent (the intent to continue doing business with you) is a better metric.

Personalized Discounts

Discounts for existing customers on their next purchase is a great way to increase the value of a customer. The key to success is to ensure the discount is personalized to their previous buying behavior. Using an online e-commerce business as an example, you can track the process on your site and offer them discounts on products that might have been abandoned in their cart. Providing them discounts for milestones like birthdays is another great strategy.

Loyalty Programs

One of the most successful ways of retaining a customer is to implement a loyalty program. It can be as simple as a card that gives them an automatic discount when they purchase, or a points reward program that they can redeem for merchandise. This will add value in highly competitive markets and will give your business a leg up on getting repeat business and preventing defection.

Build Your Team

Having the right people in key customer-facing positions is important to proper customer retention. You will need analysts, customer service managers and agents and may need third-party service providers like call centers and loyalty programs to ensure your customers are met with great service and over-and-above benefits to keep them happy and buying more.

How to Calculate Customer Acquisition Cost

As mentioned above, the equation to calculate customer acquisition cost is simple:

(Marketing Costs + Sales Costs + Salary Expense) / (Number of New Customers)

Marketing costs can include radio ads, newspaper space, copywriting, design, and other expenses that relate to marketing. Sales costs relate to the cost to produce your product and could include R&D, raw materials, manufacturing, packaging, and more. The salary expense is how much you pay those involved in customer acquisition. This would then be divided by the number of new customers acquired. All these factors would be for a set time period (one month, for example) and that would give you your customer acquisition cost.

How to Calculate Customer Retention Cost

The costs of keeping an existing customer active by continually buying from you is called customer retention costs. Unlike the simple formula for calculating customer acquisition, customer retention costs are harder to calculate.

There are many different methods, calculations, and factors to include. Some calculations take the expenses of retention, churn, CAC, and overhead from total purchases. No matter how it’s calculated, customer retention affects the lifetime value (LTV) of a customer. If you can keep retention costs low, the LTV will increase, which in turn can increase your CAC budget to acquire more of those types of customers.

Whether you’re looking to acquire new customers or keep your existing customers happy (and honestly, you should be doing both if you want to succeed), the experts at Macromark can assist you with multi-channel marketing strategies for virtually any business. For more information about our services, contact us at 1-(845)-230-6300.

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David Klein

David Klein

David Klein is CEO and President of Macromark, Inc. David has a rich and deep background in direct response marketing. His experience comes from being a consultant and list broker with more than 25 years in the Industry; working with several hundred different clients in just about every industry, market or niche found in direct mail. David is a graduate of the University of Illinois with high honors advanced degree course work in Marketing Communications from Roosevelt University in Chicago. Part of Macromark’s vision is to help its clients succeed in their acquisition efforts for finding new customers regardless of the marketing channel or media used. Add me to your G+