Customer acquisition or customer retention?
05 December 2021- 12 min read
One of the questions I often receive is this:
“Should we focus our efforts on acquisition or retention?”
Let me stress that one does not necessarily exclude the other. However, most people do not understand the implications of a high churn rate. Let me try to illustrate this with an example.
Company A has a churn rate on 10% (Every month 10% of the customers are “churning” a.k.a. cancelling their subscription). 90% stays as subscribers.
Company B has a churn rate on 20% (Every month 20% of the customers are “churning” a.k.a. cancelling their subscription. 80% stays as subscribers.
In this example let’s say that both companies are able to attract 100 new subscribers each month.
Now let’s have a look at the numbers after 12 months:
|
10% |
100 |
190 |
271 |
344 |
410 |
469 |
522 |
570 |
613 |
651 |
686 |
718 |
|
|
20% |
100 |
180 |
244 |
295 |
336 |
369 |
395 |
416 |
433 |
446 |
457 |
466 |
|
|
154 |
277 |
376 |
455 |
518 |
568 |
609 |
641 |
667 |
687 |
704 |
717 |
Company A will have 718 active subscribers. (Blue)
Company B will have 466 active subscribers. (Green)
The difference is remarkable.
So that rises another question: How many new customers should Company B be able to acquire each month to end at the same result as Company A after 12 months? (Red)
I needed to play a little with the numbers in my spreadsheet (you can download it here – for your own amusement – and to adjust the numbers for your business!).
If company B should end with the same result as Company A after 12 months they should acquire 154 new subscribers each month. More than 50% more than company A.
I am not going to give you a finite answer to the question I initiated this post with – however I encourage you to reflect what you think is easier and requires less resources. A socalled “low hanging fruit”
Acquistion of 50% more subscribers every month OR retaining 10% (in full numbers) more subscribers every month.
My recommendation is usually that if you focus on keeping your new acquired customers happy you will end up with a more profitable business than if you focus solely on acquiring new customers every month and thus tend to neglect existing customers.
Even small variations will give you a big difference after 12 months.
Use this spreadsheet to make your own test and help you decide where you should focus your efforts.
