Balancing Customer Acquisition and Retention Strategies

With a plethora of consumer apps around, customer acquisition and retention have become more important than ever. Balancing these two strategies lays the foundation of any business’s success. While acquisition helps you attain your short-term goals, retaining them helps you boost your customer loyalty and lifetime value.

But where should your focus go? How do you strike that ideal balance? In this blog, we'll explore the various customer acquisition and retention strategies, which consider factors such as cost differences and key metrics.

What Is Customer Acquisition?

Customer acquisition is the process of bringing in a fresh customer base to your app, ensuring that they purchase your services. This process begins with identifying the target user demographic, and then moving to ideating a proper marketing strategy across channels.

An effective customer acquisition effectively turns prospective customers into a loyal user base, making a path to long-term growth for your app.

What Is Customer Retention?

As the name indicates, customer retention involves keeping customers engaged and satisfied enough to continue using your services for a long period of time. 

By nurturing relationships and strategically improving engagement, your user stickiness can improve significantly, making users repeat buyers and helping your business grow. This kind of nurturing involves regular communication, offering a personalized experience, and consistently delivering quality experiences to fit your customer needs.  

Why Is Customer Retention Important?

There are mainly three reasons why customer retention is essential to your business’s long-term growth: 

1. Cost-Effectiveness

Studies have shown that acquiring a new customer can be 5 to 7 times more expensive than retaining one, making it less cost-effective. The main reasons for this include higher marketing costs, advertising competition, and longer conversion cycles.

2. Higher Profitability

While saving money already makes retention profitable, another aspect makes it an even more impactful strategy. A retention of even 5% can enhance your profits from 25% to 95%. This is because a retained customer is more likely to extend their spending on your product over time than an acquisition.

3. Brand Advocacy

No marketing strategy or tool can beat word of mouth. A long-term customer can be the most effective way to attract a fresh customer base. This can save you additional marketing costs and make your customer your brand ambassador.

Examples of Effective Retention Strategies

The following strategies can significantly improve your customer experience, thereby enhancing retention to drive sustainable growth:

1. Personalized Communication

By introducing push notifications, your brand can encourage customers to take advantage of exclusive deals, discounts, and product updates. 

Applications such as Zomato encourage customers to engage further using push notifications based on their behaviors.

2. Reward Programs

Implementing reward programs through gamification and loyalty program points can encourage repeat purchases and retention. 

Fintech apps like Google Pay inculcate rewards based on transactions such as discounts and cashback, which encourages further user retention.  

3. In-App Experiences

The addition of mobile feature adoption elements such as nudges and widgets on the app- where you have a consumer’s uninterrupted attention,  can ensure customer engagement, and boost retention. By inculcating gamified in-app elements like round-up savings, and providing saving reminders, Chime was able to increase its retention rate by 50%.

Acquisition and Retention Metrics

You must have a certain set of metrics in hand in order to measure the success of your retention or acquisition strategy. Here are the major metrics used by brands globally: 

1. Metrics for Measuring Acquisition Success

• Customer Acquisition Cost (CAC): The total expense behind acquiring a new customer which includes both marketing and sales expenses. 
• Conversion Rate: The percentage of customers who converted from viewers to users after completing a desired action.
• Traffic Sources: They identify the various marketing channels, including organic, paid, social, etc., and find which drove the most traffic to your product.

2. Metrics for Measuring Retention Success

• Customer Retention Rate (CRR): The percentage of customers you have retained to adopt your services for some time.
• Churn Rate: The percentage of customers who opted out of using your services during a timeframe.
• Repeat Purchase Rate: Used to pinpoint how frequently customers make additional purchases. 

3. Balancing Metrics to Evaluate Overall Strategy

It is to be noted that balancing these two strategies involves analyzing metrics such as Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC). The goal is to ensure that the CLV is greater than the CAC, thus balancing your strategy.

When to Focus on Customer Acquisition

Now, let’s examine when you must focus on customer acquisition and a few challenges you might face while doing so. We will also touch on a couple of examples to help you understand the impact of customer acquisition.

1. Situations Requiring More Acquisition Focus

• Customer acquisition must be prioritized when launching a new product or entering a new market.
• Another instance when your business must focus on customer acquisition is when your customer base is stagnant.

2. Examples of Businesses Successfully Implementing Acquisition Strategies

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• Netflix: Focused massively on making content partnerships for marketing campaigns, which gave the product rapid growth in subscription worldwide.

• Meesho: Along with entering the social media channels and empowering resellers to use platforms such as WhatsApp and Facebook, Meesho also incentivizes new sellers to engage extensively. Therefore, they managed to expand their services effectively.

3. Potential Challenges in Focusing on Acquisition

• Focusing on customer acquisition can lead to higher expenditure.
• Focusing on acquisition may only give short-term gains and cannot ensure profitability.
• Out of the many new customers who enter the market, some users will likely leave the product at risk of failing to produce lasting results.

When to Focus on Customer Retention

‍Similar to what we discussed above, we will now touch upon the situations, examples, and challenges behind focusing on customer retention:

‍1. Situations Requiring More Retention Focus

• An app with an established user base must focus on its retention efforts.
• Another instance where an app must invest in retention is when the market’s growth potential is limited.
• Retention ensures consistent revenue when your product is sold under a premium model or is based on subscriptions.

2. Examples from Businesses Successfully Implementing Retention Strategies

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• Flipkart Plus: By offering free shipping and personalized exclusive deals, Flipkart has ensured its membership model retains its user base and enhances engagement to shop consistently.

• PUBG: With its personalized limited-time skin deals, new modes, and seasonal events, PUBG has retained its loyal customers by using regular updates and rewards to encourage further engagement.

3. Challenges Specific to Certain Industries in Retaining Customers

• Subscription Fatigue: Customers tend to opt out of services in industries such as streaming when they feel overwhelmed or cannot find the value in using them
• Market Saturation: Another major challenge faced by products in established markets is their reduced demand due to the many options available.

Balancing Acquisition and Retention for Sustainable Growth

‍To ensure your company’s long-term financial health is optimal, you must design your customer acquisition and retention strategies in a balanced manner. Here’s why it is required and how it should be done:

‍1. Importance of Balancing Both Strategies for Long-Term Success

‍Focusing too much on either of the strategies can be detrimental to the product. In the case of focus given just to acquisition, the probability of churn rates can turn highly high, reducing the chances of profitability. Conversely, if the focus is just on retention, the growth potential stagnates, eliminating the possibility of market expansion. Therefore, a business needs to invest in its operations strategically based on its conditions and goals.

‍2. Recommended Budget Allocation for Acquisition vs Retention

‍There is no one ideal budget plan that all companies must follow. Your business plan differs from others based on factors such as market conditions, time frame, etc. Here are a few general rules on budget allocation based on the business stage and industry:

• If the business has just entered the market or is in its growth phase, 60% must be invested in acquisition and 40% in retention.
• For a mature business looking for stability and sustainable growth, 50/50 is the way to go.
• If the company has an existing user base and just wants to maximize the lifetime value, it is advised to invest 30% in acquisition and 70% in retention.

Conclusion

‍While one can understand the importance of keeping one's long-term goals solid, the only way to reach them is to overcome one's short-term hurdles. A company cannot survive by only focusing on customer retention or acquisition strategies. 

By following the customer acquisition and retention strategies discussed above, you can strike that golden ratio that will take your company to the heights you dreamed of. With our no-code mobile adoption elements, such as in-app widgets, gamification, and nudges that can be deployed within minutes, Plotline offers expert assistance to boost your in-app engagement strategy.

‍Book a demo to learn to see Plotline in action.